3rd October 2014

Scottish Life: Auto-enrolment lessons to be learned

We summarise TPR's latest report into the impact of auto-enrolment.

In their latest research and analysis report into auto-enrolment, The Pensions Regulator (TPR) has given us an inkling as to what the next two years or so will bring for employers and their advisers.

Although the report mainly covers large and medium size employers, there are lessons to be learned and insights that advisers can use to help build their business around the estimated 1.3 million smaller employers due to stage from 2015 to 2018¹.

The use of postponement

Of those ten thousand or so employers who completed a declaration of compliance, almost five thousand used postponement - and for good reason.

By using postponement, employers can save significant chunks of administration and payroll time and money while complying with their duties.

As a result, any adviser looking to help employers with auto-enrolment should have postponement in their armoury - it can be a powerful tool.

Opt-out rates

Some employers might think that most or all of their workers will opt-out and so auto-enrolment won't cost them much. But all the indications are that opt-out rates are much lower than expected.

According to DWP research, opt-out rates ranged between 5% and 15%. As a result, it's changed its assumption for the opt-out rate amongst all employers - including small and micro employers - from 30% to 15%.

The main reasons identified by TPR for opt-outs are age (i.e. older people) and people who opted out of contractual enrolment and then opted out of auto-enrolment as well. Of course employers might not have any eligible jobholders at all but more people could opt-in than predicted, so employers should be careful in their assumptions.

Compliance and enforcement

TPR say that 99% of employers have achieved compliance without intervention. However there have been several cases they have investigated and used their powers.

From 1 April 2013 to 31 March 2014, TPR issued 14 compliance notices, one unpaid contributions notice, two statutory inspection notices and one Statutory Demand.

An example given by TPR in its use of an inspection notice is for a case where a breach was identified and TPR entered an employer's premises to investigate the payroll software and speak to the staff responsible for the employer's auto-enrolment project. A Statutory Demand notice can be issued by TPR were it wants to see any documentation relating to the pension scheme. All of these powers are backed up by the force of the law, and employers who fail to comply can subsequently face criminal charges.

TPR identify some common themes that led them to using their formal powers:

• Organisational restructures due to mergers/wind-ups.
• Multiple employers within the same organisation not completing a declaration of compliance.
• Not planning early enough.

Dealing with smaller employers

Some people might think that it's slightly disappointing that TPR has not actually fined any employer for a breach of the Pensions Act 2008. But it's only a matter of time.

In fact TPR already anticipate that they will have to use their formal powers more - in particular where they identify wilful non-compliance (wilful non-compliance has a maximum penalty of 5 years in prison).

So over the next 12 months, part of TPR's focus is to educate employers and raise awareness of auto-enrolment as well as reaching out to the professionals that will help employers to get compliant.

But somewhat ironically, it may only be when the first employer is fined that we'll start to see many employers sit up and take notice.

How we can help

To find out more about our auto-enrolment solution and the support we offer advisers, visit the auto-enrolment section of this website or speak to your usual Scottish Life contact.

Download the full TPR report

Download the full report from the TPR website. The article is named “Automatic enrolment: commentary and analysis 2014 (PDF, 518kb, 39 pages)”

Automatic enrolment: Commentary and analysis: April 2013 – March 2014

Auto-Enrolment, Retirement