UK - The National Association of Pension Funds has warned current proposals for auto-enrolment in 2012 are "too rigid" as they give employers insufficient time and flexibility and will lead to higher costs as a result.

An NAPF response to the Department for Work and Pensions' consultation on auto-enrolment said current proposals will likely encourage levelling-down of existing pension provision largely because the short timescales in which employers must complete processes will make firms less willing to rethink existing support and payroll systems.

More specifically, the NAPF said rules for handling opt-outs would costs employers hundreds of thousands of pounds within the first year so rather than alter systems they will simply switch employees to personal accounts.

In order to tackle the problem, the NAPF has instead proposed employers be given three months instead of 44 days to adopt auto-enrolment and should then be given two months, instead of 7-14 days, to provide employees with information ahead of their first contribution.

Likewise, the restriction preventing employers from directly giving employees a form allowing opt-out should be lifted, said the NAPF, and the time within which employees can opt out, once they receive initial information, should be extended from 30 days to three months to start immediately.

Employers need more flexibility over the handling of contributions during the opt-out period while the deadline for the return of contributions should be simplified too, said Nigel Peaple, director of policy at the NAPF, otherwise it is likely to be the low-paid who will be most penalised.

"The NAPF supports the introduction of auto-enrolment, however the DWP's proposed processes and timescales, set out in the draft regulation, are too rigid," said Peaple.

"These problems are largely avoidable if the DWP radically alters its approach and allows employers much more flexibility. The government must act urgently to take account of pension scheme concerns," he added.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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