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Starting gun misfired on UK’s pensions

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  • Starting gun misfired on UK’s pensions

UK - Consulting firm Towers Watson has criticised the UK government's pensions auto-enrolment strategy for all employers and likened its application to hosting just one event at the 2012 Olympics.

Paul Macro, senior consultant at Towers Watson, said the good news is employers of all sizes will at least be able to "circle" when pensions auto-enrolment will affect them, though argued "it's like saying the Olympics would still take place in 2012 if we only held the 100 meters in that year".

Legislation governing when employers should introduce auto-enrolment was unveiled yesterday. However, consultants such as Towers Watson have attacked the four-year time delay between the largest and smallest employers.

Firms with more than 120,000 staff will have to auto-enrol staff from the beginning of October 2012, while companies with at least 50,000 employees will have to do so by the end of 2012.

The smallest companies with fewer than 50 staff, however, will be given much more leeway and will be allocated a time slot depending on their payroll number, and could be September 2016 before they are required to introduce pensions, noted Towers Watson.

"For a long period of time, it will be one rule for some employers and another for the rest," said Macro.

"For example, the largest employers could be fined £10,000 every day for failing to auto-enrol the handful of staff who did not join a good scheme voluntarily while smaller employers remain free to provide no pensions at all. For the smallest companies, payroll numbers have become lottery numbers. Some will have to put their staff into pension schemes two years earlier than their competitors," he added.

This could be particularly bad news as latest figures presented by the government suggest the actual administrative costs per employee of doing so have also risen from £10 (€11) to £20 per person for larger firms and from £40 to £50 for smaller employers.

It is also accompanied by concerns that employers already offering defined contribution pension schemes will level down contribution levels as there are still no rules from the UK government explaining whether a scheme has passed the DC quality test.

Pensions contributions under existing rules are usually defined as a percentage of all basic pay, yet the UK government has said the new minimum contribution level will exclude the first £5,000 of earnings but include overtime and bonuses - leading Macro to argue that some existing schemes would appear to be paying less than the minimum contribution in "unusual circumstances".

"The danger is that the easiest way to comply with the rules will be to make changes that actually reduce contributions to most employees", continued Macro.

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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