Exempt through complexity

We still don’t know what an exempt scheme will look like, but that is because the government is in listening mode, says John Greenwood

Advisers wanting to tell employers what their responsibilities will be if they want to be exempted from enrolling staff into the Nest scheme will have to wait for the outcome of a fresh consultation launched by the Department for Work and Pensions last month.

A busy start to the year for workplace pension reform also saw the unveiling of the new brand for personal accounts. The National Employment Savings Trust, or Nest, will take over from the Personal Accounts Delivery Authority on 5th July, with the latter organisation being wound up on that date, when staff, including Tim Jones, are Tupe’d over.

The DWP says it accepts that the proposals on exempt schemes as they currently stand could create too much complexity for employers, driving them away from non-Nest plans.

David Haigh, head of personal accounts reform at the DWP says: “We are going to pull the regulations on certification. We have an industry/ employer working group which is looking at this issue. The feeling at the moment is that the current process is too time-consuming, too clunky. We are also doing some research on levelling down, which we want to feed in. So there will be a proper consultation on this in due course. There is currently too much division between stakeholders on where we ought to go on this issue, so it would be wrong to bulldoze this through.”

While this will mean more delay for employers wanting to prepare for 2012 and thereafter, advisers are hopeful that the DWP’s attitude reflects a willingness to make life easier.

Paul Macro, senior consultant at Towers Watson says: “Employers will hope this stay of execution means the government will reduce the hoops they have to jump through to retain their existing schemes. But it has consulted before without making big concessions and will not want to remove any safeguards. The danger is that the easiest way to comply with the rules will be to make changes that actually reduce contributions for most employees.”

But the DWP’s announcement has given employers the clearest indication of exactly when they will be required to comply with auto-enrolment, and what proportion of band earnings they will be required to pay. This timetable means the official 2012 date is only meaningful for the very biggest employers.

The DWP has confirmed that only employers with at least 120,000 employees will have to auto-enrol staff from the official start date of October 2012. Only those employing at least 50,000 people will be brought in by the end of 2012. Small employers – those with less than 50 workers – don’t need to automatically enrol workers into a qualifying pension scheme until some date between March 2014 and February 2016. In a similar way, new companies setting up after 2012 will not need to enrol staff until some date between March and September 2016.

It will be September 2016 before all employers are subject to the new duties and October 2017 before the modest rates of minimum contribution are fully phased in.

Andrew Tully, senior pensions policy manager at Standard Life, says: “This delay in having to automatically enrol employees in a pension scheme and pay contributions to their pension pots, will come as a welcome relief for small businesses who are likely to be still recovering from the effects of the recession in a few years time. However, as it will now be 2017 before the full 8 per cent payment kicks in, savers will not build up significant savings until after 2030.”

The DWP is in the process of developing a piece of software that will give employers inputting their staff numbers a precise month by which they will have to comply.

The Pension Regulator says it will be publishing information for employers about their obligations under auto-enrolment at some point in the spring.

The DWP has also decided to extend the current ’19-day rule’ which requires employers to pass pension contributions onto the scheme fairly quickly. The new rules allow the employer to hold onto contributions for new joiners until the end of the second month so that the employer can see if a worker opts out or not, before they have to pass contributions onto the scheme. This is designed to make refunds simpler and cheaper for those who opt-out.

But it has not all been plain sailing for the DWP. The admin costs of introducing pension reforms have been revised upward. When the legislation was first put before Parliament, the government said administrative costs in the first year would be £10 per employee for large firms and £40 per employee for small firms. This has now become £20 and £50.

Macro says: “The Government is preoccupied with the idea that a few employers will try to evade their responsibilities.”

Joanne Segars, chief executive of the NAPF says: “In a number of areas they have not gone far enough. Further changes will be needed to help maintain existing good quality provision.”