Employers want eligibility criteria altered for auto-enrolment

Half (50%) of respondents who have passed their auto-enrolment staging date said the number one change they would like to see to the legislation is the removal of the age and earnings eligibility criteria so that all UK workers would have to be auto-enrolled, according to research by law firm Eversheds.

The research, which was been published on the first anniversary of the introduction of auto-enrolment, surveyed more than 300 employers to assess how organisations are faring one year on.

Among respondents that have passed their staging date, 38% said that more than 10% of employees have opted out of the pension scheme after being auto-enrolled. Only 14% said that more than 25% of employees who have been auto-enrolled have opted out.

More than a third (35%) of respondents that have passed their staging date have found the administrative burden associated with auto-enrolment the greatest challenge, while just over a quarter cited updating the payroll systems and 22% cited the preparation of auto-enrolment communications for employees.

A quarter of respondents that have calculated the cost of auto-enrolment said it has resulted in additional costs to their business of more than 5% of payroll. This includes set-up costs, administrative costs and an increase in pension contributions. Around 8% said that the additional cost to their business has been more than 10% of payroll.

The research also found:

• 60% of respondents believe that auto-enrolment is a good thing for their organisation.
• More than half think the government should cap charges in default investment funds under auto-enrolment schemes, while 15% said it should not.
• 6% of respondents that have passed their staging date have reduced the pension benefits that they offer existing staff as a result of the introduction of auto-enrolment.

Francois Barker (pictured), partner and head of pensions at Eversheds, said: “Given the Office of Fair Trade’s (OFT) decision not to recommend a cap on charges in its study of the [defined contribution] pensions market earlier this month, it is intriguing to see that more than half of employers would like to see a cap applied to the charges that can be imposed on members’ benefits in default funds under automatic-enrolment schemes.

“[Pensions minister] Steve Webb has indicated that he intends to press ahead with plans to cap charges, despite the OFT’s reservations, and our study indicates that this will be supported by the majority of employers.

“One year on from the launch of automatic-enrolment, the message from employers seems to be: ‘So far so good’. Automatic-enrolment is generally seen as a positive thing and large employers have embraced the challenge of updating their systems, setting up new schemes and encouraging their staff to engage with pensions saving.

“However, the industry cannot rest on its laurels with 1.5 million small and medium-sized businesses still to comply. The government and regulators also need to take further steps to ensure that workers who are automatically enrolled do not find themselves old and broke when they retire.”