Pension scheme laws: don't get left on the blocks

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Olympians and Paralympians are not the only ones to have spent the past four years preparing for D-day. Next month, the Pensions Act 2008 comes into effect, putting the legal onus for the first time on employers to enrol eligible employees into a pension scheme.

The requirements are being staged, with larger companies first off the block. By 2017, every employee in the UK must be automatically placed into a Qualifying Workplace Pension Scheme. This can be either an employer-sponsored pension arrangement or a National Employee Savings Trust (NEST) arrangement.

The Pensions Regulator suggests preparation will take 12 to 18 months. It will write to employers 12 and three months before their staging date to explain what needs to be done. It is evident from the research I have seen, however, that few employers are ready.

According to the payroll and pensions professional institution CIPP, the majority of employers have not yet assessed their workforce in sufficient detail to understand the proportion that would need to be automatically enrolled.

“We find surprisingly few retailers planning and preparing properly for auto-enrolment,” says Jeremy Campbell, chief people officer at payroll services provider Ceridian. “It is often being left to pensions managers who are trying to manage relationships and projects of huge complexity with little oversight or support.”

This isn’t the only problem though. KPMG estimates the cost of auto-enrolment to businesses to be £3.5bn a year. These costs have to come from somewhere and there are examples of companies looking to strip up to 2.5% of their payroll costs by capping payment on income protection, for example. There is even talk of depressing pay rises to cover the costs.

Heinz has taken an alternative approach: “We have saved 1.3% of our payroll through salary sacrifice over the past three years,” Anne Sewell, Heinz HR director UK & Ireland, tells me. “We anticipate that 20% of the 400 employees in scope will opt to join our defined contribution pension plan.”

The tax and NI savings that can be achieved through salary sacrifice makes this a solution worth considering. What is clear, though, is that employers need to get their act together on auto-enrolment or they will be left on the blocks.

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