Radical rethink needed on auto enrolment rules
29 Jun 09
The National Association of Pension Funds has criticised proposed rules for pensions auto-enrolment as “inflexible, bureaucratic and costly to both implement and run” in its response to the Department for Work and Pensions (DWP) consultation on the rules of how automatic enrolment for employees in workplace pension schemes will work after its introduction in 2012
The NAPF supports the aims of the 2012 reforms and the introduction of auto-enrolment; where all employees will be automatically enrolled into an existing workplace pension provided it meets a quality test or the new Personal Accounts scheme. However, the NAPF is concerned that the proposed rules will lead to high costs for employers and to a levelling down of existing pension provision, particularly for those employees on lower incomes or short-term contracts.
It is estimated that the current proposals for handling opt-outs would cost large employers hundreds of thousands of pounds in the first year of application, as employers have to change payroll processes to comply with the rules. Employers, in order to avoid the cost and complexity of applying new processes to existing schemes, will be more likely to opt for Personal Accounts and the new 2012 minimum contributions, resulting in a levelling down.
Nigel Peaple, NAPF director of Policy, said: “The NAPF supports the introduction of auto-enrolment, however the DWP’s proposed processes and timescales, set out in the draft regulations, are too rigid.
“We are concerned that the requirements will undermine the Government’s policy objectives of maintaining good pension provision, preventing levelling down and increasing overall savings levels.
“These problems are largely avoidable if the DWP radically alters its approach and allows employers much more flexibility. The Government must act urgently to take account of pension schemes concerns.”
The NAPF is proposing a number of modifications to the DWP’s proposed rules and deadlines, all of which are aimed at ensuring the new requirements fit in with current payroll procedures and can be achieved in practice:
• auto-enrolment period – the adoption of three months as an over-arching deadline by which to complete all auto-enrolment requirements. This will result in an extension of the deadline to complete auto-enrolment from 44 days to three months
• information – extension of the periods employers are allowed to provide information to employees from 7-14 days to two months and to schemes from 7-14 days to a point ahead of the first contribution
• opt-outs – far greater flexibility over the handling of opt-out forms. The ban on employers being allowed to give them to employees should be removed. In addition, employees should be allowed to opt-out as soon as they receive information about the scheme and the period in which they are allowed to opt-out should be extended from 30 days to three months. The five-day deadline for employers to notify employers of an “invalid opt-out” should be removed entirely, NAPF says.
The DWP consultation Pensions – Consultation on Draft Regulations, can be found via www.dwp.gov.uk