"Simplicity and standardisation" needed as smaller employers prepare for pensions auto-enrolment

Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com, was commenting as the Pensions Regulator published its first in-depth analysis on the programme to date (37-page / 369KB PDF). It has also published a number of guidance documents to help employers with limited pensions experience to select a good quality scheme for their workforce.

According to the regulator, 1,153 employers had completed the auto-enrolment registration process as of July 2013; up from 83 in March 2013 at the end of the first six months of the scheme. According to reports from employers, less than 10% of workers have so far chosen to opt out of the scheme. Auto-enrolment began for the largest employers on 1 October 2012, and 'staging dates' by which smaller companies and new companies will have to begin the process run until 2018.

"The early success of auto-enrolment is encouraging, but the large employers that have already gone through the process are far from typical," Tyler, a pensions law expert, said.

"Of those employers that implemented auto-enrolment before 31 March 2013, 79% used a defined benefit pension scheme. The vast majority of employers going through that process now will be using a defined contribution pension scheme. Benefit consultants, providers and other advisors have been willing, for a price, to help the large employers do what has been necessary. Smaller employers may not be able to afford the same levels of service, and are more likely to trip up over the requirements," he said.

Over the next six years, more than 1.3 million employers will begin automatically enrolling workers into a pension scheme which meets minimum requirements or the Government-backed National Employment Savings Trust (NEST). Once the process begins, employers will be legally obliged to make contributions towards the pensions of automatically enrolled workers who do not opt out of the scheme. Between six and nine million of the 11 million people expected to be eligible for auto-enrolment by 2018 will be new savers or saving more than before, according to Government estimates.

The analysis by the Pensions Regulator is the first of what it plans will be an annual report, which will summarise data for the 12-month period ending 31 March each year. It will provide an overview of awareness and engagement, employer registration, compliance and enforcement, and information on the number of eligible jobholders choosing to opt out of the scheme. This first report also provides information on the background to the reforms.

According to the report, the majority of employers were aware of the three main features of the reforms by autumn 2012. These are the fact that they will need to automatically enrol UK workers, provide a qualifying pension scheme and make employer contributions to that scheme.

The regulator said that it began a programme of "targeted communication" to make employers aware of their duties under the reforms well in advance of their staging dates, beginning in 2011. Under its current processes, the regulator begins writing to employers 18 months before their staging dates and conducts face-to-face meetings with employers, scheme providers and software providers if necessary. It will review this timescale as smaller employers come on board, depending on the type of employer and to reflect feedback, according to the report.

Television and press campaigns are among the primary sources of information provided to employers and intermediaries, according to the report. The Pensions Regulator noted a steep rise in the number of visits to its dedicated automatic enrolment web pages following the launch of a Government-backed marketing campaign. In total, its pages containing interactive tools and detailed guidance about the programme received over 320,000 visits over the reported period, with the majority of visitors searching for information about employer duties and staging dates.

As of 31 March 2013, the Pensions Regulator had opened a total of 89 investigations into possible non-compliance with the reforms by large employers, according to the report. These investigations focused on employer readiness in relation to their duties, including the nature of their communications with workers; and on helping employers to become compliant. The regulator noted that it had not yet needed to use its powers to "compel compliance", but that it would "take proportionate enforcement action where it is appropriate to do so".

"This report reflects our desire to provide frequent, authoritative information and analysis to clearly set out the impact of automatic enrolment," said Charles Counsell, the regulator's director for automatic enrolment compliance.

"So far the implementation of automatic enrolment has gone well. Our focus ahead is to ensure that organisations with less experience of pensions are ready for their new duties. In the first few months of 2014, tens of thousands of employers will be implementing automatic enrolment. As [our] report shows, awareness and compliance among large employers is near universal and we want to see this mirrored among medium sized and smaller employers," he said.