Pension Auto-Enrolment: Avoiding the Pitfalls

By October 10, 2013Legal Update
Pension Auto Enrolment

The Government is aiming to head-off a future savings crisis with a pension auto-enrolment scheme for employees – and HR departments need to be aware of the potential pitfalls that this new legislation could bring.

The latest development that employers need to know about when enrolling staff is new regulations banning consultancy charges. The regulations came into force this month (September) following a Government consultation on whether companies could charge staff for the cost of advice about their pension schemes from third parties.

In practice, the legislation means that employers with staff in auto-enrolment schemes cannot pay for advice from outside bodies other than the pension provider, manager or a trustee, using money from the employees’ pensions. Pensions Minister Steve Webb said the move was designed to ensure employee pension contributions were not “gobbled up” by charges.

So far, more than one million people have been automatically enrolled in pensions since the scheme went live almost a year ago. Only companies with more than 250 staff are so far required to provide pension schemes for those employees that have not made alternative private pension arrangements.
However, businesses classed as ‘medium-sized’ – ie those with 50 or more staff – should be preparing for auto-enrolment now as they will be required to join the initiative from April 2014. Small firms, with 49 or fewer staff, must be on board by May 2017.

Initially, businesses must contribute at least 2% of an employee’s earnings towards their pension. That is broken down into 1% from the employer, 0.8% from the employee and 0.2% from tax relief. Contributions will rise from October 2018 to 3% from the employer, 4% from the employee, with a further 1% coming from tax relief.

Preparing for auto-enrolment is a costly and time consuming process, according to the Centre for Economics and Business Research. It calculates up to 103 man days will be spent on the task per business, with set-up costs averaging £8,900 for a small firm and rising to more than £23,000 for companies with 500 employees.

Retained HR Services from HR Solutions can provide you with the policies and guidance you need to manage your HR effectively. Call us on 0844 324 5840 or contact us online for more details.

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