Auto-enrolment 'postponement' will double contributions
UK - Employers have been given some flexibility in the implementation of auto-enrolment in 2012 with the provision of a three-month 'postponement' in return for a doubled contribution.
Draft regulations published for consultation by the government last week confirmed employees will effectively be auto-enrolled into a scheme the day they join a company with a minimum contribution of 8% of qualifying earnings - 4% from the member, 3% from employer and 1% tax relief.
However, the proposed legislation enables employers to postpone auto-enrolment for up to 90 days providing they then auto-enrol the worker into a defined contribution (DC) scheme with a minimum employer contribution of 6% of qualifying earnings, which together with the employees payments equates to 11% in total, or a qualifying defined benefit (DB) scheme.
This option is not available to employers using personal accounts, as it is intended to act as an incentive to employers and persuade them to retain existing higher-level pensions.
If employers take advantage of the waiting period the company must continue the 6% level of contributions for a minimum of three months to ensure members do not "lose out as a result of the postponement".
Rachel Vahey, head of pensions development at Aegon UK, said the rules will be particularly helpful for employers who have a high turnover of staff in a short period of time, such as fruit-picking or events management, as it provides "a little bit of flexibility" and gives the employers "a lot more time and control over things, such as when contributions will start and when you distribute the information".
Once the statutory three-month period is over employers can reduce the level of contributions to the minimum of 3%. Yet if new employees join the firm the employer can adopt the waiting period again so some employees could be on 6% while others on a lower level, as the regulations are not looking at the scheme in totality but how it affects that one particular individual.
Vahey said there are also "many overlapping pieces of employment legislation" with pensions, so there could be a number of problems regarding employee relationships and legal issues.
She admitted the draft regulations are "highly convoluted for employers to deal with as pensions don't work like this at the moment" but suggested the postponement in exchange for higher contributions could appeal to some types of business to avoid the "kerfuffle" of administering auto-enrolment of people who will opt-out or leave the company quickly.
"This is trying to tackle concerns regarding waiting periods in existing schemes and gets over this issue of temporary workers", said Vahey, although she admitted she would prefer more flexibility in terms of either a six-month waiting period or an overall 8% contribution with 6% coming from the employer.
Clarification of the potential waiting period follows an initial suggestion highlighted by the then pensions minsiter Mike O"Brien in a pensions committee debate last year. (See earlier IPE article: 'Loophole' revealed in personal accounts contributions)
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