Partner Article

Preparing for auto enrolment

Catherine Wilson, partner at law firm Thomas Eggar LLP, outlines what employers can do now to ensure they are prepared for auto enrolment.

From 1 October 2012, all employers will be compelled to start enrolling workers into workplace pensions. The exact impact is unknown but it is thought that as many as 10 million employees will eventually be included in pension savings for the first time as the scheme rolls out.

Employees can choose to opt out of this saving but there is an on going obligation on both parties to revisit any decision to opt out at regular intervals following the first opt out. Also those employers who already provide a work pension scheme which meets the Government’s standards will not need to participate.

The exact start date for a particular employer will depend upon the number of UK based staff employed by the organisation. Employers with more than 120,000 employees will begin doing this in October 2012 but all employers will follow over several years with the smallest employers, namely those with fewer than 30 employees, having up to April 2017.

There are however a number of steps all affected employers can do now to prepare for auto enrolment:

Employers need to decide which pension scheme they wish to automatically enrol their employees in to. This could be their current scheme or an alternative scheme such as the National Employment Savings Trust known as NEST.
Employers should calculate the level of “qualifying earnings”. Auto enrolment envisages a certain percentage contribution based on earnings. However not all payment qualify as “earnings” and there may be particular difficulties where an employee’s income has a tendency to vary.
Employers can postpone the start of auto enrolment for up to three months. This may be worth considering if an employer needs extra time to integrate the new rules for pension saving into payroll.
Under the new roles Employers will need to keep additional records for compliance purposes. These can be either electronic or paper based but they must be legible and easily reproduced. Additional information may be needed such as the dates of birth of casual workers. Some data cleansing may also be required.
Employers should review current terms and conditions and relating pensions documentation as current information is likely to be out of date.
Certain staff may require special handling. Employers should audit current pension membership records to identify “specific cases” such as those staff who already have personalised arrangements for tax or other historic reasons to avoid potential costly disputes.