Saving grace
It is hard to predict whether the pensions reforms will help revive the UK's ailing retirement savings, but what is certain is that employers must be ready to meet their new obligations, says James Gulliford
Reforms coming into force next year mean that, for the first time, employers will be obliged to offer and contribute to a pension for their workers. These come in response to studies showing that the UK workforce is not saving enough for retirement to maintain the current standard of living for pensioners.
The government's chosen option to address this savings gap is automatic enrolment, where all employees will be enrolled automatically into a pension scheme, and will have to expressly opt out if they do not wish to participate.
Currently any inertia on the part of employees results in their not participating in pension schemes that employers may offer. Auto-enrolment deliberately taps into this by turning the situation on its head: workers who do nothing will be enrolled in pension scheme membership unless and until they actively opt out.
The express intention to target individuals who have not traditionally had access to work-based pension saving means that there are very few exemptions to this obligation, which will be introduced in stages starting in October 2012.
The Pensions Regulator has issued a detailed (and arguably daunting) set of nine guidance papers. While employers need to read these to understand the reforms fully, and consider the implications for their organisation, the most pressing issues for employers are set out in the box.
First steps for solicitors
Solicitors will inevitably have many clients that are employers. The first obligation towards these clients is to contact them to ensure they are fully aware of the requirements that lie ahead.
In terms of specific legal work, solicitors may be asked by their employer clients to review current employment contracts and terms, for example, or to provide advice on what amendments to an existing pension arrangement would be needed for it to meet the requirements of a 'qualifying scheme'.
Even for employers who do not require legal advice, they are likely to need assistance from other sources, such as HR advisers, payroll systems providers, employee benefit consultants and pension providers in order to be ready for auto-enrolment.
As a first step, clients must establish their staging date. This sets the deadline by when the auto-enrolment obligations apply '“ when they must 'go live'. To ensure that everything in place for then, there are important decisions and preparations to make. The most important of these include: will NEST or a qualifying scheme be used?
Does an existing arrangement meet the qualifying scheme criteria? What amendments are needed if it is to qualify?
The big questions
The onus for addressing pension saving is being passed to employers '“ an unwelcome burden in the current economic conditions. Less clear is whether this shift will revive the health of pension savings across the UK workforce. Will the projections about employee 'inertia' be borne out? Will younger employees wish to forego 'take home' pay? Will employers reduce overall remuneration to compensate for pension contributions?
We shall have to wait until well after 2012 before we have any answers.