Firms to Enrol Employees in Pension Scheme
From 1 October 2012, all employers will be required by law to enrol eligible employees into a qualifying pension scheme.
Auto-enrolment duties are being phased, based on the size of employer – starting with those with more than 120,000 employees on 1 October 2012.
The company will need to pay minimum contribution levels (starting at 1%, increasing to 3% by 2017), and there are fines for non-compliance.
Gurmukh Hayre, Head of DC Solutions at KPMG, said: “Companies need to start thinking about auto-enrolment at least 18 months before their staging date. They should be putting together an internal team, made up of people from finance, HR, IT and payroll, to work out what needs to be done.
“Employers with existing pension schemes in place need to look at their duties with regard to auto-enrolment – what they currently pay, and what they will be required to pay – and carry out a gap analysis to assess whether the scheme in its current guise would be compliant.
“Then employers need to think about the consequences of auto-enrolment, such as how many people are not in the scheme and the impact will be in terms of operational costs when they are brought in.
“Essentially you need to ask: is this the right scheme to use in the next five, 10 or 15 years, or should I be looking to revamp it to make it better able to cope with auto-enrolment?
“If you’re an employer, you need to make sure your payroll and HR systems are fully integrated into whatever pension scheme is being used.”
Minister for Pensions, Steve Webb said: “It is entirely legitimate in a time when the economy is in sluggish growth that government looks at all the things it does that have an impact on business.
“But I am absolutely committed [to auto-enrolment]… With auto-enrolment we’ve got a chance, we’ve got an example, of where the basic architecture has been talked about for years, legislation was passed years ago – we’ve refined it but I think the principles have stayed the same.”
Bill Galvin, Chief Executive of the Pensions Regulator, said: “Workplace pensions law is changing and every employer will have to act. Automatic enrolment will not affect the bulk of small businesses until 2015 or 16. We nevertheless urge all employers to take some time right now to look up their automatic enrolment duty date so that they know when the new law will apply to them – and make a note in the diary to take action in plenty of time.
“The regulator will also write to all UK employers at least twice in the lead up to their duty date.”
Phasing in from 2012, employers must take responsibility for enrolling all eligible UK employees into a qualifying pension scheme, and pay a minimum contribution. This will inevitably lead to increases in costs and administrative burden, but if you do not comply, you will be liable for fines.
Implementation challenges include:
Financial impact – understanding all associated costs, including set-up, ongoing administration and escalating contribution levels (both employer and employee) and the impact these have on your business.
Current pension plan design – reviewing this to make sure it fits with your short and long term business and HR objectives.
HR & Payroll systems – capability to meet demands of both initial implementation and ongoing compliance.
Communication – rolling auto-enrolment out to your employees will require a robust communication plan to ensure compliance and employee understanding.
Timescales – sufficient time to plan and identify changes required to ensure compliance ahead of the fast approaching deadlines.
What does KPMG recommend?