Employers in the UK started to automatically enrol their employees into workplace pensions in 2012 when they reached their staging dates, however, the employers affected at that time were mostly blue chip UK names such as Tesco who employee 476,000 people.
Our clients started to reach their staging dates in early 2014 and so they have been running workplace pensions for approaching three years. The three year mark is important and to date has largely gone under the public radar as the focus remains on enrolling those UK employers who are yet to reach their staging date through to early 2018.
Every employer must reassess their workforce every three years, which essentially means re-enrolling all eligible employees into the workplace pension, including those who have chosen to previously opt out of the pension scheme. Employees do have the opportunity to opt out again, but the Government has ordained that everyone must be put back into the pension on a triennial basis and if they wish to leave, they must take the action required to do so on a repeat basis.
From the Government perspective this approach makes sense on the basis that over time it is likely that inertia will take effect and fewer people will make the effort to leave the pension scheme. The Government needs this to be the net effect, because recent Scottish Widows research showed that savings adequacy amongst 40 to 49 year olds indicated that only 53% of that age group are on target for a secure retirement today. By discounting the number of people relying on defined benefit pensions in retirement and looking solely at those covered by auto-enrolment, the proportion of people saving adequately has increased in the past 12 months from 39% to 43% . This Scottish Widows research shows how central workplace pensions are going to be for employees seeking a secure retirement. As more employers have introduced workplace pensions, the proportion of people in the UK not saving at all has dropped by 1%. These changes are only marginal at the moment, but then contribution rates are at the minimum levels, once all employers have staged, the contribution levels start to rise quite markedly and one would expect a knock on effect for UK savings rates.
The Government is fully aware though that those on lower earnings may not be eligible to join workplace pensions immediately and may opt to leave once contribution rates rise and so the three year re-enrolment assessment is deemed necessary to catch as many people as possible and keep encouraging them to save and benefit from their employer’s contribution.
For employers the re-enrolment process is not yet straightforward and each provider has a different way of dealing with it. As with anything, there are options and rules which employers may not be aware of and the timing of when each scheme will reach the three year point is crucial. Some pension providers will be more proactive than others in flagging up the re-enrolment issue, but many will leave the onus on the employer to take the necessary action to remain compliant.
The Pensions Regulator, who govern workplace pensions, are taking their role seriously. Between July and September 2016, they issued 3,728 fixed penalty notices compared to 861 between April and June 2016. The Pensions Regulator put the jump down to a 50% increase in the number of employers reaching their deadline to comply with auto-enrolment rules. These types of figures were inevitable as more, typically smaller employers reach their staging date, but they demonstrate that employers are held responsible for knowing the rules and complying with them. The same approach will be adopted for triennial re-enrolments.
This is yet another reason why it is important to seek regular advice and support when running a workplace pension. There is quite a bit of work at the start when implementing a scheme for the first time, but beyond that there are key dates and requirements which employers need to comply with. Add in the increasing contribution levels and that employees may have an abundance of questions around why their employer has re-enrolled them into a scheme they thought they had left and the benefit of having someone to assist with those questions ongoing becomes clearer.
Workplace pensions are not going away, but the requirements for employers are not always obvious. The UK needs people to save and workplace pensions will become hard to avoid. The need for advice and ongoing support to help employers and their employees through the process as it evolves over the years will be intrinsic to how efficiently the employer can manage the scheme and how the Government can encourage and maintain scheme membership ongoing.