Andrew Tully is senior pensions policy manager at Standard Life
Automatic enrolment is the cornerstone of the pension reform changes being introduced from 2012. The Government's consultation on how auto-enrolment will work in practice has just closed, and it is worth considering this from an employer's perspective.
I am a supporter of automatic enrolment as it will help improve the savings habit in the UK. However, by going down the route of auto-enrolment rather than compulsion, a significant number of people will choose not to save in a pension.
While we should encourage the majority of people to save, those who insist they want to opt-out should be able to do so in a simple way. A way which doesn't financially penalise them or impose additional costs on their employer or pension scheme.
The auto-enrolment proposals are often shortened to the '7/7/30 process'. Employers will have to use this process from 2012 for all new employees, all staff reaching age 22, or those starting to earn above £5,035. Importantly, existing staff who are not pension scheme members in 2012 will also have to be auto-enrolled.
As there are 4.7 million people who are not members of their employer's workplace pension scheme, this means millions will have to be enrolled within a short period.
Within seven days of starting work, the employer must provide the jobholder with basic details about the pension scheme. By day 14, the jobholder must be a member of the scheme. Then a 30-day period starts during which the individual can opt-out. If any pay period is crossed before the employee opts-out, then the appropriate level of pension contributions MUST be deducted from pay and passed onto the pension scheme within the usual timeframes.
This is what I dislike about the proposed process. An employee cannot opt-out until the 30-day period starts. So it is likely there will be at least one, sometimes two, pay periods before an individual opts-out.
While some people do need time to consider their options, there will be others who know on day one that they will not join the pension scheme. In spite of this, a huge amount of unnecessary work needs to take place, which will take time and effort.
People will be disgruntled as money will be deducted from their pay and they may not get it back for two months or more. The employer will face additional costs as they need to deduct payments, pass onto the pension provider (if they don't they break the law), request a refund, and pass the money back to the employee.
Calculating and deducting pension contributions from employees who already know they do not want to be members of the pension scheme is wasteful, inefficient and not customer-friendly.
Allowing opt-outs within the first 14 days, or not collecting payments from jobholders until after they have definitely joined, appear more sensible options.
While I hope the current proposals will be altered, you can help your corporate clients in the run up to 2012. Gradually enrolling staff in advance will help remove the peak of work in 2012, and employers can also use a simpler basis.
If the enrolment process stays as it is, ensuring the scheme is with a provider which has the service capabilities to process refunds quickly and simply will be a necessity.
Whatever the outcome, life after widespread auto-enrolment won't be the same.
Staying invested could prove lucrative
Consider lasting powers of attorney
Less environment, more governance threatens to undermine firms' green credentials
Evidence your compliance