Auto-enrolment standards work urgently needs to start, expert warns

From 1 October companies with more than 250 employees will have to automatically enrol

'eligible jobholders' aged between 22 and the State Pension age who are earning more than £8,105 a year into a workplace pension scheme or the National Employment Savings Trust (NEST). Work pension schemes must meet minimum regulatory requirements in order to be suitable for auto-enrolment.

Pensions law expert Simon Laight of Pinsent Masons, the law firm behind Out-Law.com, said that a number of different systems would be involved in the operation of auto-enrolment. These will include payroll, benefits and pensions systems and would store masses of data.

Digital standards company Origo has outlined its intention to draw up standards that would allow the different systems to interact with one another, according to a report by the Financial Times.

However, Laight said that it was important that such standards are developed as soon as possible because without standards enabling the different systems to talk to one another the auto-enrolment process may not work smoothly. He said a consequence of this might be that employers struggle to meet deadlines to comply with the law.

"Given that many large firms need to comply with auto-enrolment from 1 October they will need time to negotiate with their IT service providers, sign contracts and then implement systems that enable compliance," Laight said. "If new standards are introduced at the last minute this will throw the whole process off kilter."

"These standards are needed to underpin the delivery of a policy that must work if future generations, and the state, are to avoid being saddled with the burden of pension provision," he said. "These standards enable interface between disparate parties which is not currently achievable."

"Without these standards the delivery of auto-enrolment is creaking at the edges. Auto-enrolment is possible without standards, but employers might be forced into unsuitable delivery systems because their preferred delivery mechanism cannot get off the ground," Laight said. "The best solution for a specific employer may be to pick and mix a specific combination of payroll, pensions and benefit systems but this will only work if all can talk safely to each other and in a pre-ordained fashion. Therefore it is important for the future financial health of this and future generations that this is got right and soon." 

Laight said that stakeholders in auto-enrolment, including employers, payroll providers, human resource platforms, employee benefit consultants, pension administrators and contribution collection systems would be among the interfaces that would need to 'talk' to each other to ensure the smooth operation of auto-enrolment. Developing those systems takes time because of the fact that wider rules, such as those that relate to data protection and data security, have to be considered as part of the process, he said.

He added that interoperability was needed because of the "frequency and types of incidents when data would need to be shared between systems." Examples of when data sharing would need to take place would be if workers had been enrolled but exercised their right to opt out, or during the three-yearly re-enrolment process or as part of an ongoing assessment, such as monitoring when workers reach 22 years of age and therefore have to be enrolled, Laight added.

National Association of Pension Funds (NAPF) chief executive Joanne Segars recently warned that auto-enrolment rules requiring the integration of pensions with company payroll systems were "eye-wateringly complex” and causing headaches for employers.

"It could have been an awful lot simpler," Segars said, according to a report by the Telegraph. "Employers are worrying about how on earth they will implement auto-enrolment."

The Pensions Regulator has the power to fine employers up to £10,000 for every day they fail to adhere to their auto-enrolment duties. Those duties include paying employer contributions to individuals' pensions. Employers are also barred from offering inducements to staff to persuade them to opt out of auto-enrolment.

The Regulator recently published (22-page / 374KB PDF) its compliance and enforcement strategy which details how the regulator plans to approach the issue of non-compliance.

"We'll apply the law fairly and where we find consistent or wilful non-compliance we will use our powers, so that employees do not miss out on contributions they are due," Bill Galvin, chief executive of the Pensions Regulator, said in a statement.

Earlier this year the Government announced large employers would have to start auto-enrolling their workers into a pension scheme which meets minimum requirements, or the NEST scheme instead, from 1 October. Mid-sized firms will be required to reach compliance from 1 April 2014, whilst later dates of compliance have been set for small and new-start firms.