I have managed to keep off the subject of Auto Enrolment (AE) for a few weeks now, but following a most useful session with The Pension Regulator yesterday afternoon, this is most certainly back on my agenda. This is likely to be the first of several posts on this subject over the coming week or so.

Which is probably a good thing, as most of the employers following this blog are now fast approaching their AE staging date, and many are not yet ready to comply with this process.

Today’s topic is one that has been kicking around for a while, and one that I was delighted to get some clarification on at yesterday’s event. And that is on Postponement, and how this can be best used by the employer.

For those new to the AE topic (or those that have not brushed up on this recently), Postponement is a tool the employer can use to delay auto-enrolment. This can be applied for an entire grouping of employees, or on an ad hoc basis for individual employees.

When applied, the AE process can be delayed for up to three months. Within that window, the employer can select the date to assess the employee. This, it should be noted, is pretty much the only time the employer can set the ground rules for assessment.

The rationale behind Postponement was to allow for transitory or seasonal employees to be removed from the AE process, this saving the employer time and money enrolling employees that will have left in very short order. It is therefore a tool that many employers will be considering in these cash-strapped times.

But it may also have some applications for other employers and employees.

Let’s take an example of an employee on a relatively low level of basic salary, but with an annual bonus based on (say) sales. Such an employee may well be earning less than the auto enrolment trigger in most months, so would not be subject to enrolment into a pension scheme. However, the income for this individual will be subject to a ‘spike’ when the annual bonus is paid.

At the point that income spikes, auto enrolment into a pension scheme could be triggered. If the employee fails to opt-out during the process (and the point of AE is that most workers won’t opt out purely on the ground on inertia), the employee will remain in the scheme. This would be the case even if the employee’s salary then dropped below the AE earning trigger the following month.

Depending on the scheme the employee is enrolled into, this may mean that the scheme will receive no further contributions from the employer or the employee until the salary again spikes above the contribution thresholds. So we could end up with many savers only getting one, relatively small, contribution into a pension scheme every 12 months.

Now such a situation does not really benefit anyone. The employer and employee have made a payment to the pension scheme, but the level is likely to be low, and the resultant pension equally poor. This therefore does not really help tackle the savings gap either.

This is where a tactical use of Postponement comes in. When the earnings spike, instead of auto-enrolment, the employer can defer the assessment process to a later date. As long as the later date selected corresponds with a period of lower income, then auto-enrolment will not be triggered. Thus the enrolment cost to both parties is avoided.

And what’s more, the Postponement card can be played time and time again, so it’s possible that an employee in this situation could avoid auto-enrolment for many years. Clearly the employer will still have to monitor the employee to ensure that auto-enrolment duties are still complied with, but this could evidently be a useful (if slightly complex) tool to consider in controlling cost and administration.

So, it’s not all bad news on the AE front, and as ever there will be tactics that you can employ to ensure the best outcome for all parties. Much more on this subject soon.

Best regards

Steve