22 May 2012

Employers should speak to staff now about the impact of auto-enrolment

With less than five months to go until the first employers in are required to automatically enrol staff into a pension scheme and make mandatory minimum contributions, Shakespeares are warning employers not to delay in briefing staff on the possible consequences of these new pension arrangements.

The government has estimated that from October some 10 million workers may automatically be put into a company pension scheme in an attempt to help reduce the UK’s considerable pension savings gap. From 1 October 2012, the first employers will have to start making or increase pension contributions for eligible permanent and temporary staff. The new requirements will be phased in for smaller employers over the next few years.

According to employment law experts at Shakespeares, there is a general lack of readiness for auto-enrolment and in many cases employers have not yet told their staff about how the changes will affect them.

Shelley Harcourt, employment law partner at Shakespeares’ Nottingham office, said:

“With just a few months to go, it is surprising that some employers have not given any thought to these onerous obligations.

“It is important that they do so now and take steps to brief their staff on how the new rules controlling pension provision will affect them. Some staff, in particular part-time or temporary workers, may not be able to afford any reduction in their take-home pay and in these circumstances employers may want to give them an opportunity to opt out.

“Where possible, employers should be conducting briefings with individual members of staff to tell them more about what the changes will mean for them.”

According to the regulations regarding auto-enrolment, all employers must provide access to a compliant pension scheme and make the relevant contributions for any eligible member of staff who does not formally opt out of the process. The minimum contributions from both employees and employers will be phased in over a five-year period starting at two percent and ultimately increasing to eight percent (five percent employee, three percent employer).

Businesses not yet ready for auto-enrolment will need to take action now by reviewing their current provision - updating employment contracts and amending payroll systems. There are also onerous ongoing obligations in terms of complying with the strict record-keeping requirements and assessing employee salaries (and therefore contributions) over each pay reference period.

Shelley Harcourt added:

“Auto-enrolment is certainly something that employers need to be preparing for now and as part of this, it is important that they don’t forget to brief staff fully on any new pension arrangements being extended to them.”

If you would like to speak to Shelley about preparing for auto-enrolment please contact her on 0115 945 3750 or shelley.harcourt@shakespeares.co.uk