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Staged automatic enrolment scheme poses challenges for business

Published 9th September, 2010 by Neil Nixon

Staged automatic enrolment scheme poses challenges for business

The automatic enrolment scheme, a new legislation which makes it compulsory for employers to enrol eligible workers into a qualifying workplace pension scheme, is due to come into force from 1 October 2012. Under these measures, employers will have to enrol workers into a qualifying workplace pension arrangement and choose the qualifying scheme they adopt to discharge the newly arising duty and will have to make a minimum 3% contribution towards a defined contribution scheme.

Employers will also have an ongoing duty to maintain qualifying pension provision for workers who are already members of qualifying schemes or become a member of such schemes.

The Cleaning and Support Services Association’s members employ over 275,000 people, and many of these workers do not currently have a workplace pension provision in place. Both the employees and their members will be acutely affected by the planned introduction of the automatic enrolment.

CSSA members have expressed the following concerns that the phasing of the introduction of automatic enrolment, guided by company size, will have a damaging competitive effect on those that are required to enroll their workers in the scheme’s early stages:

• With the margins for cleaning companies often being very small - sometimes no greater than 5% - the introduction of a 3% employer contribution to pensions would have a severe impact on the profitability of the early implementers.

• Businesses operating in the cleaning industry often enjoy a competitive marketplace, regardless of their size. For example, a business with 100 cleaning staff can realistically bid for the same contract against a competitor with 10,000 cleaners. But once automatic enrolment has commenced, smaller businesses will have a direct competitive advantage, as they will have a window to bid for work without the additional costs of automatic enrolment. This risks creating unfair distortions.

• The size of the workforce of a cleaning business can fluctuate significantly over a short period of time, and it has been known for workforces to grow and shrink over the course of a few months as contracts change hands and cleaners TUPE in or out of the business. This would affect the month in which auto-enrolment would start. Cleaning businesses would welcome further guidance on how they should time their auto-enrolment, within the context of volatile employee numbers. Moreover, with a changing workforce, there will be large numbers of workers with micro-scale payments into pensions, and the portability of those pensions will be tested.

• The large number of different categories and timings of auto- enrolment are very complex and are likely to cause confusion. The separation of the under 50 employee group by PAYE code is an example of this, in that some firms may have a two year cost advantage over their competitors as a result.

The CSSA would like to make the following proposals to help improve the implementation process of automatic enrolment:

• A single, universally applicable date for automatic enrolment - to remove the competitive distortions inherent in the phased approach.

• If the phased approach remains in place then clear guidance on the correct start date for businesses with fluctuating workforce numbers should be provided.

• Clear rules on the portability of pensions, so that workers who TUPE transfer between different employers, know how to take their pensions with them.

• Clear guidelines on what happens if an employee TUPE transfers from an auto-enrolled business to one that is not.

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