Auto-enrolment U-turn impacts even the biggest employers

When Steve Webb first announced on Monday that employers with less than 50 staff would not need to comply with auto-enrolment until after May 2015, I did not take much notice working for an employer with more than 7,000 employees in the UK. However, when the DWP subsequently announced it would postpone the increase in employer contributions from 1% to 2% from the current date of October 2016 to some future date, not being announced until January, then I started to read with more interest. These changes mean that even the biggest UK employers will be unclear about their obligations until the new year.

For those employers like CSC who have been working on their strategy for auto-enrolment for some months this delay and lack of clarity is not at all helpful. I am sure that those employers who need to comply with the requirements from 2012, or those choosing to comply early next year, will need to have embedded any increase in their pension costs into their financial plans and budgets already. These financials are likely to include a prediction of pension costs into the future as pensions are a long term investment for an employer, and not just for 2012 alone. Many employers will I expect be automatically enroling their current non-joiners at their standard rates of pension contributions: but what about those employees who cannot afford to pay the matching arrangements in your scheme (and that is why they opted out in the first place).

Some employers may be considering introducing a "minimum compliant" strategy for those employees who have not joined their employer's pension arrangements due to affordability. Standard Life are even suggesting that a "nudging" strategy whereby contributions start at a low rate and then increase each year as the auto-enrolment requirements increase could be more of an affordable option for many who are not currently saving for their retirement. This is where the recent U-turn from the Government can delay the finalising of any strategy decisions that need to be made until after the new year. For some this uncertainty, which may appear small to the Government, could have a real business impact.

Julie Parker-Welch, the pensions strategy manager at M&S, has gone on record this week declaring that administering auto-enrolment is "an absolute nightmare", trying to figure out who in their workforce to auto-enrol and how to communicate with them.

It is not at all helpful to those larger employers who need to be making decisions on their pensions strategy from October 2012 (less than a year away) for the Government to be changing the goal posts at this time.

Whilst on the topic of auto-enrolment the biggest uncertainty we have as an employer at CSC, whose workforce needs to be globally mobile to meet the needs of our clients, is the definition of who to enrol - similar to M&S but for different reasons. Why would it be at all benefitcial for a US employee who has been contributing to his 401k plan throughout his career to be enrolled into a UK pension scheme for the 6 month period he is working on a project in the UK?  Again more clarification (or amendment) required and we will be speaking to the Pensions Regulator and others on this issue in the new year.

We await clarification in January with interest!