However, automatic enrolment is highly complex and with so many different parties involved in the discussion, it can be easy to become confused about what is and isn’t true. So, we’ve outlined 10 myths surrounding automatic enrolment, and explained what your business really needs to know about them.
Myth 1 – Automatic enrolment means every worker in the UK will be forced to save into a workplace pension, without being given a choice
Truth - Workers will only be automatically enrolled into a pension if they are classified as an “eligible jobholder”. To be an eligible jobholder they must be aged between 22 and the state pension age, working in the UK and earning above the minimum earning threshold.
Even if a worker is classified as an eligible jobholder, they still have the option to opt out of their workplace pension, meaning that they will not be forced to make contributions.
Myth 2 – Employers must set up a brand new pension scheme to ensure compliance with automatic enrolment
Truth – It is up to employers to choose the most suitable pension scheme for their employers. If they already have a scheme in place which meets the requirements for automatic enrolment, they can continue to use this.
Myth 3 – Employees can permanently opt out of their workplace pension
Truth – While employees do have the option of opting out available, they must be reassessed for eligibility every three years, and re-enrolled if they are classified as an eligible jobholder again.
Myth 4 – Only larger employers are legally required to comply with automatic enrolment
Truth – All employers with one or more employees will be legally required to comply with automatic enrolment.
Myth 5 – Automatic enrolment is not a payroll issue
Truth – According to a recent IRIS survey, nearly 60% of businesses see payroll as having primary responsibility for handling automatic enrolment. This is due to the fact that payroll will have direct access to PAYE information, which is required for assessing employees for eligibility.
Myth 6 – Automatic enrolment is simple, I won’t need any help
Truth – Research from NEST found that over 90% of employers would be seeking advice for choosing a pension provider. A further 74% of employers said they would be seeking support to ensure compliance with automatic enrolment. It’s only simple with the right advice.
Early feedback from employers who have already staged tells us that automatic enrolment incredibly complex, much more complicated than Real Time Information, which was the last major change the payroll industry underwent.
Myth 7 – I don’t have to worry about automatic enrolment yet
Truth – The Pensions Regulator is urging businesses to start preparing 18 months prior to their staging date to ensure they have time to get the relevant systems and processes in place. It will be a pressurised and complex process if you leave it to the last minute.
Myth 8 – Employers must have no more than one pension scheme in place to comply with automatic enrolment
Truth – Employers can have multiple pension schemes in place if they want. They must however, have at least one in place which meets their automatic enrolment requirements and is available to all eligible jobholders.
Myth 9 – All eligible jobholders must be automatically enrolled into a pension scheme
Truth – Some workers that fall into the eligible jobholder category may already be a member of a workplace pension scheme. If the scheme they are in meets the requirements for automatic enrolment, they do not need to be automatically enrolled into a new scheme.
Myth 10 – Employers can encourage employees to opt out of their pension scheme to try and save money
Truth – Employers face penalties from The Pensions Regulator if they are seen to be doing any of the following:
• Discriminating in favour of job applicants who state they are willing to opt out
• Encourage workers to opt out
• Treat an employee unfairly because they won’t opt out
Regardless of the size of your business or the industry you work in, automatic enrolment will affect you. Preparing early is incredibly important, as many industry experts predict a “capacity crunch”, with the risk of demand outstripping supply for software, services and advice.
Mark Paraskeva is CEO at IRIS SME Division