14th January 2014

Aegon: The legal requirements of auto-enrolment

Auto-enrolment is a subject that has been, quite frankly, covered to death by the media.  When a topic gets so much coverage it's sometimes easy to overlook the kernel of truth - the real driver behind change. When it comes to auto-enrolment, for me the ultimate driver for change is that employers can’t get out of it. They have to comply with the legislation or face substantial fines.

Employers have to make sure that the total minimum contribution made to the pension scheme must be 8%, with the employer paying at least 3%. All eligible workers must be automatically enrolled into a pension scheme that meets certain criteria. Employers will also have to maintain detailed compliance records for a minimum of six years.

It's important that every employer in the UK is aware of these seven key steps:

Step one: Know your staging date - when to act
Step two: Assess your workforce
Step three: Review your pension arrangements
Step four: Communicate the changes to all your workers
Step five: Automatically enrol your eligible jobholders
Step six: Register with The Pensions Regulator and keep records
Step seven: Contribute to your workers' pensions

If an employer doesn't comply deliberately or through ignorance, the regulator will have the power to issue a fixed penalty of £400 to an employer.  They can also issue an escalating penalty at a daily rate. These penalties are set at a level to fine an employer the cash flow benefit they're getting by not complying. There would be no incentive for an employer simply to pay a fine and not comply. Instead the opposite is true -  there's no financial benefit in not complying.

The information below illustrates the escalating penalties that might be applied to employers for breaches of their auto-enrolment duties.

Number of employees       Prescribed daily rate (£)

1-4                                                         50
5-49                                                      500
50-249                                               2,500
250-499                                             5,000
500+                                                10,000
 

Many advisers are considering if they want to be active in auto-enrolment. My view is that if you have any clients who are employers then you're already in this market.

As we've seen, the fines for non-compliance can be high and how would any of your clients feel if you didn't point this out to them and left them in potentially dangerous ignorance? Would you retain that client?

Also, is there a danger that they will be informed by another source, and that could be another adviser. If so, is there a risk of losing your client?

The legal requirements of auto-enrolment are a classic sales disturbance opportunity. It's important that clients, and potential corporate clients, understand the stark reality of non-compliance and the financial penalties it can bring.

Every business needs to have an auto-enrolment communications plan.  You might decide that you'd like to have a light touch engagement and perhaps pass your existing clients on to an alliance. However, can you risk not letting your clients know about their legal requirements?

More infomation

John Joe McGinley
Head of Business Brain 
Aegon

Auto-Enrolment