Will the existing schemes meet all the qualifying and automatic enrolment criteria?
To be a qualifying scheme and an automatic enrolment scheme, existing schemes need to:
▪ be a registered occupational or a personal pension scheme (including stakeholder pensions)
▪ have employers’ agreed contributions of at least 3% of the jobholders’ qualifying earnings
▪ have total employers’ and jobholders’ agreed contributions of 8% of the jobholders’ qualifying earnings (including 1% tax relief)
▪ not require members to make any decisions (for example, choosing an investment fund)
Does the employer want to use their existing scheme, the personal accounts scheme or both?
Both private pensions and the personal accounts scheme have advantages, but which option the employer chooses will depend on their employees’ circumstances. It’s likely they may offer different solutions for different employees. Start work on segmenting the employees in terms of their work agreement. For example, how many are part-time, are there any seasonal workers or migrant workers, and what level of benefits do they qualify for?
Will the new responsibilities cost more? If so, how much?
Most employers currently calculate contributions using a percentage of basic pay with no lower band cut-off. But qualifying earnings are a band of earnings between £5,035 and £33,540 (tax year 2006). This includes payments such as bonus, commission and overtime. With estimated average take-up rates of 40%, costs for employers are going to increase and they should consider auto-enrolling employees now to phase in the extra cost (see below).
How can employers start increasing take-up?
There are a number of things that employers can do to increase pension scheme take-up such as reviewing their induction process for new starts to place greater emphasis on the pension scheme or running a pension awareness campaign. They should also make sure they have an updated approach to automatic enrolment.
Currently, trust-based occupational pension schemes can introduce autoenrolment. However, this isn’t an option for contract-based plans because current legislation prevents it.
One solution would be to change employees’ contracts of employment to allow automatic enrolment, which is easy to do for new members of staff. For existing employees, employers could host pensions seminars, typically run by their scheme’s provider, to give them more information about the plan and to give them a register to sign, stating that they agree to be enrolled into the pension scheme.
Does the employer have the necessary infrastructure in place to cope with the changes?
Regulations on the auto-enrolment process are yet to be finalised, but one thing is for sure – the administration involved, although likely to be e-based, is substantial. Employers need to start thinking about their systems and processes, and whether these would be able to cope, and if they have enough resources in their pensions department.
It’s also crucial to remember autoenrolment doesn’t mean autoengagement. A pension is the most valuable benefit for employees, but it’s also one of the least understood. Employers need to think about their communication approach to help their employees with decision–making, whilst
avoiding a barrage of questions.
As with training for the Bealach nam Bo cycle race, the employer duties under the Pensions Act 2008 will mean hard work and a lot of preparation for advisers, employers and providers. But if we plan our route and start getting fit and ready in time, the reward for all us of will be ample.
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