The automatic enrolment process into workplace pensions began in October 2012 and by the end of September 2016 over 250,000 employers had completed the automatic enrolment process, with more than 6.7m people having commenced saving into workplace pensions.
Automatic enrolment is now reaching the final stages, with the only employers left to stage being those that had less than 30 employees in April 2012, as well as any businesses that were established since that date. However, this represents a large proportion of all businesses in the UK currently, with The Pension Regulator estimating between 770,000 to 879,000 employers staging in the 2017/18 tax year.
Larger employers have had to endure the teething problems experienced in the early days of the process, keeping their dedicated HR and payroll staff on their toes. However, there is now a well-established market of automatic enrolment compliant providers with a huge variation in cost and service levels. For smaller employers, many of whom already spend an overwhelming majority of their time working in their business, the added time cost of understanding their responsibilities before selecting and establishing a workplace pension represents a major headache.
Warnings and Penalties Escalate
As we progress further into the process cases of non-compliant operation of schemes have become increasingly common. In the third quarter of 2016, The Pensions Regulator (TPR) served over 15,000 compliance notices to employers, requiring them to correct errors in the automatic enrolment process. In the previous three years less than 11,000 notices had been served.
It was a similar story for fixed penalty notices of £400 levied for purposeful failure to comply, with over 3,700 notices issued in the third quarter of 2016, more than the total number that had been issued from October 2012 to June 2016. Escalating penalty notices – which can run up to £10,000 per day – also had a boom time, with The Pension Regulator sending out 576 notices against a total of 165 in all the previous quarters.
The Future of Automatic Enrolment
Once all employers have automatically enrolled their eligible staff, the challenges continue as contribution levels are set to automatically increase incrementally. Current levels of contribution are set at 2% of qualifying earnings (between £5,824 and £43,000), of which the employer has to pay at least 1%. From April 2018, the total will become 5%, with an employer minimum of 2% – in other words, a tripling of contributions for most employees. A year later there will be a move to an 8% total, with the employer paying at least 3%.
With over three quarters of a million employers having to assess their automatic enrolment duties in the next 12 months, there will be a heavy demand for advice as employers who have pushed auto-enrolment to the back of their mind realise the time has come to act. We would urge all employers to start thinking about auto enrolment as soon as possible to avoid the rush.
If you have not yet prepared for auto-enrolment, talk to us as soon as possible about your options.