U.K. Sponsors Dragging Feet in Implementing Auto-Enrollment

April 29, 2010 (PLANSPONSOR.com) - Despite the considerable preparations necessary to implement auto enrollment, only a small proportion of U.K. employers appear to have taken steps to implement the feature required by the 2008 Pensions Act.

In a survey of trustees, pensions managers and pension administrators, Mercer found less than a third say they are progressing well with their preparations while more than two-thirds have either not yet begun or have only just begun.   

A Mercer press release said that early on, employers will need to identify those sections of their workforce that need to be auto-enrolled, determine whether employer contributions will need to be paid, and agree on their future pension arrangements under the new regulations. Employers will also need to identify how the changes will be implemented and by whom.   

The Mercer survey found divided opinions on who should take responsibility for managing the auto-enrollment process, with a third of Mercer’s survey participants indicating they expect their scheme administrator to be responsible. Another third will look to their HR dept, while most of the remainder saying management responsibility should be shared between their payroll team, HR, and scheme administrator.   

“The problem is that many employers are unaware of the complexity and detailed implications of the changes that lie ahead,” said Geraldine Brassett, Principal in Mercer’s Outsourcing business, in the press release. “2012 may still sound like a long way off, but unless they start to prepare soon, many companies may find themselves repeating the experience of A-Day and rushing to meet their deadline.”   

Brassett said the reasons employers commonly give for not taking action are that they have not yet agreed on their pension strategy or are awaiting the outcome of the U.K. election in case circumstances change, while others believe they have no action to take as they already operate auto enrollment under their existing pension arrangements. “One of the effects of the new legislation is that auto-enrolment will be driven, on occasion, by changes in pay rather than age or date which has generally been the case in the past. The chosen department or outsourced provider will therefore need to deal with the concept of active members who may be inactive for short periods of time, or vice versa,” commented Brassett.

The estimated costs of implementing the new processes and communications for auto enrolment vary widely among companies polled by Mercer, with one in three believing the costs will be £5,000 – £20,000 and a similar number estimating them at £20,000 – £50,000. Other responses ranged equally between less than £5,000, over £50,000, and “Don’t know.”   

The 2008 Pensions Act also establishes a National Employment Savings Trust (NEST) pension scheme for workers with no pension cover.