Ten pension automatic enrollment myths by Mark Paraskeva, CEO SME Division, IRIS on 05-Jun-2014

Automatic enrolment is the biggest single change to the pension industry in decades. Introduced as part of the government's workplace pension reforms in 2012, the legislation will be rolled out to all businesses across the UK over the coming months.

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, I've outlined ten myths surrounding automatic enrolment and explained what your business really needs to know about them, says Mark Paraskeva, CEO of the SME Division of IRIS.

1. 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 (currently 65 for men and 60 for women), working in the UK and earning above the minimum earning threshold of £10,000 a year
   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 if they do not want to.


2. 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 employees. If they already have a scheme in place which meets the requirements for automatic enrolment and is certified, they can continue to use this. We would, however, recommend that employers with an existing scheme speak to their pension provider to ascertain if it meets the qualifying criteria set out by the pensions regulator. If it does not, they will need to seek advice about the best way forward. This could result in changes being made to the existing scheme or a brand new one being created.
   One potential option for employers is NEST, the government-backed pension scheme which has been set up in preparation for automatic enrolment. Employers can use NEST on its own or alongside a scheme they already have in place.


3. 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. If after three years, the employee still qualifies, their employer is legally obligated to enrol them automatically once again.


4. 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. Staging for larger employers is already well under way and is now being rolled out to other businesses across the UK.


5. Myth 5:
   Automatic enrolment is not a payroll issue
   Truth – According to a recent IRIS survey, nearly 60% of businesses believe that either payroll alone, or a combination of payroll and other departments, are responsible for automatic enrolment. To be effective, automatic enrolment needs to take place in payroll. This is due to the fact that payroll will have direct access to PAYE information, which is required for assessing employees for eligibility.


6. 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 and requires much more preparation than Real Time Information, which was the last major change the payroll industry underwent.


7. 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.
   Your staging date for automatic enrolment depends on the size of your largest PAYE scheme as at April 2012. Employers with a PAYE scheme size of between 59 and 89 will stage before the end of 2014.
   To look up their staging date, employers will need to know the size of their PAYE scheme and PAYE reference.


8. 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.


9. 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.


10. 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.

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