Automatic pension enrolment: the nightmare has begun at the flick of a switch by David Thornhill, MD of Simplicity

Automatic pension enrolment: the nightmare has begun at the flick of a switch

by David Thornhill, MD of Simplicity

The latest pension regime is currently underway, which sees the mandatory automatic enrolment of new and existing eligible workers into pension schemes when they reach the income tax threshold.  The three-month postponement window enables employers to make employees on short-term contracts exempt from being auto-enrolled into a pension scheme, but they will be able to opt in during this period if they choose to.

For example, if a cleaning company employs 100 employees during the Olympics, 25 of these workers might insist on being enrolled into a pension and the recruitment agency can make payments into a pension for them, which includes their own contributions.  On the following Friday, they have can their contributions paid back to them; the cost of doing this will exceed any profit and requires even more paperwork.

The administrative burden places a vast amount of work onto recruitment agencies, as they have to process the enrolment paperwork for each employee, particularly if they are connected to several agencies.  If workers choose to opt out, then there are extra costs on top of national insurance to both the individual and the company, in addition to extra admin.  This could take away a flexible workforce, as some companies may be put off by the additional paperwork or the costs involved in hiring temporary workers who may opt in, and then out, of a pension scheme.

There is a simple answer to this. During the past couple of years, several new pieces of legislation have come into action, which have seen similar opposition from recruiters; the Agency Workers Regulations (AWR) is just one of these, which becomes fully effective after three months.  There should be a similar time limit postponement for demanded enrolment, where there is an engagement, for example, via a temporary contract for services with no mutuality of obligation; this is where an agency is under no obligation to find a candidate work once the individual has signed a contract, which means they do not have to do work offered and the agency does not have to find them work. Therefore, it would be sensible if such workers were excluded from the right to enrolment during an agency's postponement. If one million workers signed such a contract, then this removes the significant paperwork and costs from the agency.

Research conducted by benefits consultancy Jelf Employee Benefits found that while 42% of employers had made some progress towards getting ready for auto-enrolment, just 31% said they felt prepared for it; this illustrates that the majority of employers still are not ready, despite the importance placed on pensions, due to an ageing population who are working longer than ever before, in order to save up for a reasonably sized pension.

It’ll be interesting to see how the scheme fares over the next year and how many choose to delay the auto-enrolment.

If you’re unsure about how auto-enrolment will affect your business, our experts will be happy to discuss the right support for your business and help you safely negotiate the pensions enrolment minefield. For more information visit our website www.simplicityinbusiness.com and please feel free to contact us for a no obligation consultation on 01594 546585 orsales@simplicityinbusiness.com.