Russell Davidson, managing director, Davidson Asset Management, sets the scene on the major changes to pension legislation in the UK
With what is probably the biggest shake up in pensions for decades why is automatic enrolment (AE) not receiving a fanfare and build up as certain other events taking place this year? A few of the reasons many mention are: focus on the Olympics (the need to maximise room occupancy and avoid disruption to revenue), re-financing and re-structuring debt and HMRC real-time integration. For those who are aware of AE – staging dates are a while off and the government keeps changing the rules daily.
Whatever the reasons for not prioritising the issue, the reality is that there are just a few months remaining until the law requiring employers to auto-enrol staff into a qualifying workplace pension scheme comes into force. AE is going to happen and the rule changes which are being introduced are relatively small technicalities; the main provisions are in place and should not prevent organisations planning and preparing for their staging date. Doing nothing is not an option, with hefty fines and penalties of up to £10,000 per day for non-compliance.
For HR, payroll and pensions professionals in the largest organisations preparation has been ongoing for at least the last 18months. There may not be a gold medal at the end, but achieving a successful outcome may feel just as
an important result to many.
Why is AE being implemented?
Millions of people are not saving enough to reach their required income in retirement. State support is lessening and life expectancy is increasing; the latter generally being a positive aspect! People need to realise we are not all in this together. Individuals need to take personal responsibility for their own retirement plans and understand how much money they will need to save to avoid poverty in their retirement, and the sooner the better.
The Department for Work and Pensions estimates 10million people will be accessing a workplace pension scheme, many for the first time. Employers will be able to decide on a pension strategy that meets their operational and workforce requirements and crucially ensure their workforces embrace AE.
Historically pensions have usually fallen into the pensions department (if you are a large enough organisation to have one) or the domain of HR. But AE is not just a pension project; it is an organisational change which affects all sorts of business processes and requires interaction between HR, payroll, IT, legal, finance, pensions and external partners such as advisors and providers. What is crucial is that one function takes the lead to drive the project and communicate between the stakeholders, and ensure it isn’t left hanging with all parties thinking another is dealing with it. Understanding and being clear about the company’s payroll processes and data must flow quickly between departments; it is a huge challenge but also a great opportunity to ensure a joined-up approach. The Real Time Information (RTI) project and data review may also be a catalyst for an employer to consider synergies in undertaking a joint RTI/AE programme.
Many organisations will have a pension plan in place even if only for a defined category of employee. Most will consider extending these arrangements to the newly identified AE employees. The government has introduced NEST (National Employment Savings Trust) as an alternative arrangement (or in conjunction with an existing scheme) which employers can use to enrol individuals should they wish.
Communication is a vital ingredient. Many companies in the hospitality sector have numerous locations.
The key initial considerations which employers need to take account of are:
- Establish their staging date – i.e. when will AE kick in – based upon how many people are in the PAYE scheme and their PAYE reference.
- Understand the employer duties – who is an eligible jobholder?
- How does an employer enrol staff? – transient workers with irregular work patterns make monitoring earnings of entitled workers during the relevant pay reference period challenging.
- What are the minimum employer contributions?
AE is likely to have a significant impact on the hospitality industry due to the transient nature of the workforce which operates within the sector. The clock is ticking and the earlier you start the process, the more likely there will be a successful and compliant outcome.
This article was printed in EP Business in Hospitality magazine October 2012.