Helen Morrissey looks at the challenges faced by employers as the UK prepares for auto-enrolment
It has been a long and winding road but the UK’s shift towards auto-enrolment has begun in earnest. In May The Pensions Regulator sent letters to the biggest employers – those with 120,000 employees or more – giving them 18 months notice of their staging date, otherwise known as the commencement of auto-enrolment duties.
As part of these changes all employers with at least one worker will need to auto-enrol workers into a pension scheme. The reforms affect workers aged from 22 to state pension age earning more than £7,475 ($12,161) per year. Employees will contribute at least 4% of their earnings to a pension with the employer contributing a further 3% and 1% more earned in tax relief.
In the letter, the regulator’s chief executive Bill Galvin stated employers should be prepared for a range of departments – such as pensions, finance, HR and IT – to work on implementing auto-enrolment. He also reminded them about their duty to communicate with employees about the impending changes. This letter will be followed up with further communications sent 12 and three months before their staging date. Employers will also be able to utilise the regulator’s website which contains guides and information on how to prepare for auto-enrolment.
The introduction of auto-enrolment is being graduated according to employer size. The largest employers will take on their duties from October 2012, through to micro companies by September 2016. The Pensions Regulator estimates approximately 1.3 million employers will eventually be registered with them during this staging period with anything up to eight million people being enrolled into a pension scheme during this time. Auto-enrolment could account for £10bn flowing into pension funds every year.
According to Galvin, the time has now come for employers to start making decisions about how they are going to proceed.
“Employers need to start making decisions as to what kind of pension they will be offering to their employees,” he said. “It is a time of great change with decisions being made on what level of contributions to offer as well as investment choice, efficient administration and value for money.”
So the time for action has now arrived and employers must start thinking about their options. Even those employers whose current pension provision already qualifies under the new rules will find themselves facing a huge logistical challenge.
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