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UK roundup: Aon Hewitt on auto-enrolment, Towers Watson on closures

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  • UK roundup: Aon Hewitt on auto-enrolment, Towers Watson on closures

UK - Aon Hewitt has called for changes to the Pensions Bill before it comes into force.

The consultancy warned that the different definitions of 'jobholder' in current auto-enrolment legislation - and the need to track employees' status on a continual basis to "catch them as they become 'eligible'" - will have "unintended consequences".

It said many organisations were looking to make the process more straightforward by "extending auto-enrolment to everyone", irrespective of earnings or age.

But Aon Hewitt pointed out that employers are obliged by law to recognise different categories of worker as having their own distinct entitlements. Workers must, therefore, be treated differently, in even a 'simplified' structure.

Gail Philippart, principal consultant at the consultancy, said: "We would be surprised if this were the intention of the legislation, but, as it is in the Act, this situation cannot be dealt with by just tweaking regulations. We would need to see a change to the legislation itself to provide a more practical and pragmatic solution.

"In the meantime, employers have no choice but to plan with this and other complexities in mind, and work as closely as they can with their service providers to build an effective and robust process to make sure they are complying."

In other news, employers wishing to close their final salary pension schemes to existing members should do so before next 5 April, according to Towers Watson.

The consultancy pointed to government proposals published this week stipulating that benefits scheme members earned more than 15 years before could cost employers more where closure is delayed beyond that date.

The Department for Work and Pensions intends to increase the rate at which Guaranteed Minimum Pensions (GMPs) accrued between 1978 and 1997 must be revalued between the time when an employee stops earning new contracted-out benefits and their GMP payment age (which will be either 60 or 65).

The change - entailing an annual increase of 4-4.75% - would apply only where members stop earning new benefits on or after 6 April 2012.

John Ball, head of UK pensions at Towers Watson, said: "Where companies have lots of long-serving employees and intend to freeze their schemes soon anyway, the government has provided an added incentive to get it done sooner rather than later.

"For the very biggest schemes with large numbers of long-serving members, the saving from freezing the scheme from 5 April rather than 6 April could run into millions of pounds."

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