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UK - Auto-enrolment pensions: many employers are not prepared

05 December 2011

From 2012 employers will be legally obliged to automatically enrol workers aged 22 years or over and earning more than around 7,500 Pounds into a qualifying pension scheme to which the employer must contribute.

While the majority (75%) of employers are fully aware of imminent changes to workplace pension schemes, preparedness for auto-enrolment is not ubiquitous, less than one third (32%) of employers know the date on which the new rules will apply to them. That's the finding of the Chartered Institute of Personnel and Development (CIPD)'s Labour Market Outlook: Focus on 2012 Pension Changes, a survey of more than 600 HR professionals conducted by YouGov to investigate the progress that private and voluntary sector employers are making in preparation for the new arrangements.
 
47% of respondents said their organisation had either not identified their staging date (28%) or were unsure (19%). 31% of respondents working for large organisations (+250 employees), whose staging dates are actually the most imminent, were unsure if their date had been identified or not. Similarly, 38% of respondents working for large organisations were unable to say whether or not the organisation had already modelled the financial consequence of auto-enrolment, or was planning to do so within the next 24 months.
 
Charles Cotton, CIPD Reward Adviser, commented "my suspicion is that in these instances HR has assumed that another team or department within the organisation is dealing with the response to the 2012 pension changes. The concern is that these other departments may be assuming that HR is taking the lead in this area and so no actual progress is being made. Even if another department or team is responsible for this issue, it is important that HR is involved in the organisation's plan for the introduction, implementation and communication duties arising from auto-enrolment."

"By taking a proactive, rather than reactive, approach to preparing for auto-enrolment, organisations will be better placed to phase in any potential cost impact and to position themselves as employers of choice by communicating the benefits of saving for retirement."
 
Despite these concerns, there is room for optimism that employers will meet the 2012 challenges. Nearly a quarter of large employers surveyed (24%) and a sixth of small and medium-sized employers (14%) have already examined the cost implications of auto-enrolment and another 34% of large employers and 37% of SMEs are planning to do so within the next 12 months. Among those who have already costed the impact of auto-enrolment, 42% say that it will have no impact on the value of their current pension offering, while 22% report that it will increase. Just 22% anticipate making their scheme less generous as a result of auto-enrolment. An additional 13% say that they currently do not know what the outcome will be.
 
Among those employers surveyed who have already costed the impact of auto-enrolment, other economic consequences expected in 2012 include lower wage growth (33%) and reduced hiring intentions (18%). 25% of respondents believe there will be no other impact and 18% were unable to make predictions for next year.
 
Cotton added "while the on-going pressure on employee living costs is of great concern, taking a short-term view will eventually leave people worse off. Employees and their employers need to rise to the challenge today in order to safeguard the future and although there will be some short-term cost pressures associated with auto-enrolment implementation the long term gains and value will be significant."
 
Another part of the 2012 pension reforms is the creation of the National Employment Savings Trust (NEST), to offer a pension to small employers and low to moderate earners. The research shows that 20% of respondents are already aware of NEST but not their services, with a further 35% of respondents aware of both the organisation and what it does.

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