Out-Law News 2 min. read
20 Jul 2012, 2:12 pm
Pensions law specialist Matthew de Ferrars of Pinsent Masons, the law firm behind Out-Law.com said that a "capacity crunch" could hit the sector if too many employers wait to set up auto-enrolment pensions provisions. As a result businesses could be hit with extra costs if they want their systems to be updated in time to ensure compliance with the new requirements, he said.
"We are heading for a capacity crunch," de Ferrars said. "If an employer does not plan ahead and book its slot with the pension and payroll providers, and the advisers, they are going to find there is no room at the inn and that they have lost all bargaining power once their 'staging date' approaches."
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.
Other firms will have to start auto-enrolling their workers into a pension scheme which meets minimum requirements, or the NEST scheme instead, from later 'staging dates'. 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.
Earlier this week the Pensions Regulator warned though that many businesses may be underestimating the time it takes to "plan and get ready" for auto-enrolment. It has said that it can typically take 18 months to ensure all the "necessary adjustments to processes and systems like payroll, HR and pensions" have been made to ensure compliance with the rules.
However, research the Regulator has published (150-page / 12.5MB PDF) suggests more than a quarter of large private sector firms believe the process for compliance can be completed within three months, whilst one in five large public sector bodies estimate that the process can take as little as two weeks. The Regulator said it would write to all employers at least a year before those organisations must implement auto-enrolment to advise them of their requirements.
"The regulator has powers to impose fines on employers (up to £50,000 per breach) where they fail to comply," de Ferrars said. "That said, I wouldn’t expect the regulator to take too draconian a stance with an employer that failed to comply in time because of a wide spread capacity crunch."
"The loss of bargaining position comes down to the fact that if a pension or payroll provider knows that an employer has no chance of finding an alternative provider, because they have left it too late, they may offer contractual terms on a take it or leave it basis and not be prepared to enter into negotiations. This might mean that the employer does not obtain adequate protection for the situation where it delegates aspects of its auto-enrolment employer duties to a provider and that provider then lets it down," he added.