Auto-enrolment – well intentioned but ill thought out

I’m Peter Webster, chief executive of Corps Security, and this is where I examine the issues affecting the security industry. My thoughts and opinions are intended to generate debate and whether you agree or disagree with them, you’re welcome to post your comments below.

ImageMost of us are well aware of the much talked about pensions crisis and predictions warn of a bleak retirement for all those failing to save enough money for the twilight of their years. Government figures state that in 1901 there were 10 people working for every pensioner in the UK, while in 2050 there will be just two. However, facts like this haven’t been enough to encourage people to save and the rising cost of living along with widespread pay freezes mean that workers are thinking about now rather than later.

It’s no surprise then that the last Labour government brought in the Pensions Act 2008 (as amended by the Pensions Act 2011) which effectively allows for automatically enrolling people into a workplace pension scheme. Auto-enrolment – as it is commonly referred to – came into effect on 1 October 2012 with the intention of getting up to 11 million more people saving for their retirements. Under the new system those employees aged over 22 but under the state pension age, who work in the UK, who are not already in a scheme, and who earn more than £8,105 a year, will automatically be enrolled.

Pension contributions are paid gross of tax, so for a basic rate taxpayer each £1 contributed will cost them 80p from their pay packet, before being topped up to £2 by their employer. By 2018, workers must contribute at least four per cent and employers will add a further three per cent, bringing the total to eight per cent, when tax relief is included. Although it is possible to opt out, the government hopes that forcing employers to contribute plus adding tax relief will encourage people to remain part of the scheme.

So far, so good. However, not everyone will now be enrolled due to the decision to stagger implementation dates depending on the size of a company. Large employers with at least 120,000 staff have already got the ball rolling but the smallest firms have until 2017 to enrol their personnel. This, in my opinion, is the first of a number of ill thought out decisions regarding auto-enrolment.

Why? The answer’s simple – it doesn’t create a level playing field. Security service providers come in a variety of sizes and we all work to incredibly low – in some cases single figure – margins, with 90 per cent or so of our costs being labour related. This phasing in strategy leaves bigger companies that have to auto-enrol employees having to charge an extra one per cent more than those that haven’t yet had to do it. Not only is this unfair, it will also cause confusion amongst customers that will, in turn, have to pay more to employ some service providers.

The argument for the staggered roll out appears to be a pragmatic one due to the level of administration involved in coordinating the scheme. I find this a pretty poor excuse – one that does not have the interests of the wider business community at heart. Contrast this with the introduction of the national minimum wage; bringing it in at a single point in time made life easier for everyone and meant that we were all clear about what needed to be done and how to go about doing it.

This leads me on to my next issue with auto-enrolment. What happens when someone already auto-enrolled working for a security provider that has a workplace pension scheme moves on, either through a TUPE transfer or of his or her own volition, to one that doesn’t? This isn’t a rhetorical question, I genuinely have no idea and nor does the human resources department at Corps Security, which having asked all the relevant authorities still can’t get a straight answer!

A related issue concerns the transfer between pension schemes. The National Employment Savings Trust (NEST) is the government backed pension scheme that employers can use to meet their auto-enrolment obligations. Most employers are using it but it is not mandatory to do so and an employer can use any scheme of their choice as long as it fulfils certain criteria. So how does an individual transfer between two different schemes? Again, if anyone knows please can they enlighten the rest of us? I understand that the government is consulting on rules to make this happen but this should have been resolved before auto-enrolment commenced.

While successive governments have track records in introducing badly thought out and implemented schemes, just as worrying is the lack of leadership from the security industry’s own established trade bodies. Given that this is precisely the type of situation where these bodies should be providing leadership, direction and clarification, they have been conspicuous by their silence. At the very least we should have had a meeting with all key representatives of the security industry so that agreement could be made on what type of scheme – NEST or otherwise – we should all use to ensure consistency and ensure that colleagues are not disadvantaged.

If you have got this far you might be thinking that I’m against auto-enrolment, however, nothing could be further from the truth. In fact, I’m a keen advocate of workplace pension schemes and believe that we should all be doing more to avert the pensions crisis. It appears to me though that the current auto-enrolment scheme has been introduced without addressing the sort of fundamental issues that are going to lead to problems for our industry and many others.

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