Just a quick, but important, point on auto-enrolment.

As most followers of this blog will know, the legislators are keen to clamp down on employers using any approach or tactic to avoid the costs and administrative hassles posed by Auto-enrolment.

I attended an event on Tuesday, where the DWP were asked about one such approach.

The question followed this thought process:

Employers have to offer a pension scheme for auto-enrolment purposes of a certain standard. This could be NEST, or an alternative ‘Certified’ Scheme. For more information on Certified schemes, see earlier posts, and this from earlier this week: https://www.jelfgroup.com/blog/2011/11/certified-scheme-charges/

The ‘core’ NEST contribution levels are, broadly, 3% of qualifying earnings from the employer, and 5% of qualifying earnings from the employee.

Given the above, what’s to stop the employer setting up a ‘Certified’ scheme for auto-enrolment with, say, 3% employer contribution, and a 10% employee contribution requirement.

Whilst such a scheme would pass the likely certified criteria tests, it would also carry the ‘benefit’ to the employer of deterring most employees from saving on the grounds of affordability. This would have the result of saving the employer money also.

The answer from the DWP was, I thought, quite a good one.

If it were considered that such a scheme had been established purely to avoid the rules, then this could be considered soft-coercion, and thus deemed to be in breech of the intention of auto-enrolment. As such, the employer would, presumably, be liable to fines.

So this approach is clearly a non-starter for employers seeking to avoid the worst of the rule changes.

But it does raise a new question. If the employer’s certified scheme requires an employee contribution of above NEST levels, when will this be seen as being unreasonably high? I’m sure this is not one that has even got off the drawing board yet, but worth bearing in mind when establishing a scheme contribution structure I would think?

Best regards

Steve