Pensions and auto-enrolment are rarely out of the headlines these days. Most prominent was the October launch of the Department for Work and Pensions' controversial awareness-raising campaign, Workie, featuring a large blue monster with the slogan, Don't Ignore the Workplace Pension. It may not have been to everyone's taste, but it certainly got a lot of people talking.
More recently, the Chartered Institute of Payroll Professionals (CIPP) Friends of AE warned that the next few years could see widespread non-compliance from employers due to bad planning, lack of external support at the right time and an inability to select a suitable compliant pension scheme. Pension mis-selling is also a huge concern: There have been many official warnings about the rise of pension scams and earlier in November, the first ever arrests relating to auto-enrolment fraud were reported.
This October though, was especially significant for auto-enrolment: it marked auto enrolment's third anniversary and so far, 5.5 million UK employees have been automatically enrolled into a workplace pension scheme, with an additional 10 million employees yet to be included. This is now the job of smaller employers who are due to reach their staging dates between now and 2018 and who need to ensure they are complying with all relevant legislation.
But more than that, larger employers are now facing their first 'cyclical automatic re-enrolment' which, like the first stage of auto enrolment back in 2012, is likely to be just as complex, with many employers at risk of falling foul of their on-going duties. The business impact of increased pension contribution levels needs to be taken into account, an updated workforce analysis needs to be carried out and timings need to be considered.
To this end, The Pensions Regulator has provided a series of extensive prompts for employers to consider when preparing for re-enrolment, ranging from being prepared for the potential increase in employer pension contributions, workforce demographic changes which could impact opt-outs and the relevance of timing depending on weekly or monthly payrolls.
Above all, it's essential that the Declaration of Compliance is completed by the statutory deadline – if not, it becomes non-compliance and penalty notice territory once again. It is therefore vital that employers carry out a detailed workforce analysis as early as possible and seek professional guidance and support especially if their workforce is a mix of full time, temporary and seasonal staff.
Yet for all its challenges, re-enrolment provides a valuable opportunity for employers to take stock of their overall auto enrolment experience over the last three years and reflect on what has worked and what hasn't. Are they happy with the measures and strategies they've implemented and their pension providers? Is there new market technology which could ease the administrative burden? Could workplace communications around auto enrolment be improved? Were they on-message and did they engage staff?
Re-enrolment enables employers to correct any issues they have experienced whilst fine-tuning current policies and systems, not just for the benefit of the business, but for their employees, too.
Indeed, when it comes to employees, about one in 10 are currently opting-out of auto-enrolment and this figure is even lower for employers that provide an engaging employee communication programme and educational support.
Will that be the same when minimum contributions increase though? Our warning is that the low level of opt-outs is more down to inertia than proactive decisions. Many employees won't have noticed small amounts coming off their pay to put into a pension scheme. So, the employer challenge is to ensure employees remain in the pension scheme, especially when the minimum contributions start to increase. This is when the amounts being deducted will start to become more noticeable to individuals and will, I'm sure, increase the importance of educating employees about the importance of retirement planning.
Head of auto enrolment
Aon Employee Benefits