Mercer welcomes DWP’s extension

Mercer, Department for Work and Pensions, DWP, PADA, pensions, defined contribution


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Contact: Alistair Peck
Tel: +44 20 7178 3143

Mercer welcomes DWP’s extension of the staging process as ‘common sense’

UK
London, 28 September 2009

Mercer has welcomed the announcement by Department for Work and Pensions (DWP) that the system of auto enrolment will be staged over three years following consultation with the pensions industry. However, the consultancy has also warned employers against complacency pointing out that all medium sized and large businesses will still be required to become compliant during 2012.

In the consultation document “Workplace Pension Reform – completing the picture”, published on 24 September, the DWP announced that employers would be required to meet their obligations to auto -enroll employees over a longer period than had first been anticipated. It also stated that large and medium sized employers will not be required, as originally intended to pay the full 3 percent contribution in 2014 but that contributions would now be phased in to reach the full amount in 2016.

According to Steve Charlton, principal at Mercer, “Employers mustn’t use this as an excuse to sit on their hands. It’s still compliance by 2012 for many employers. We’re pleased that the DWP have listened to concerns expressed by the pensions industry on the changes needed to reduce operational risk. Over 1 million employers need to be included in this process, so it makes sense to spread the introduction for all concerned, be that PADA, TPR, pension providers and employers. There is a world of difference between the needs of a large multinational and those of a micro employer, so testing the system, and ironing out any issues, is a common sense move.”

However, Mercer reiterated the view that the DWP must still address the question of opting out for those for whom inclusion in the scheme would be counterproductive, such as older people with little or no savings.

“Forcing someone three years away from retirement to invest into a scheme, where the contribution might never exceed 2 percent in total per annum, often won’t be sensible. The funds accumulated would be minimal and some may find themselves poorer if their means tested benefits are consequently reduced. We would welcome a review of the Government’s research to identify whether the lengthening of the contribution phasing period is likely to leave even more low earning early engagers than previously expected worse off.” concluded Mr. Charlton.

Communication to this group of employees will have to be managed carefully, and employers should be given guidance, in the context of legislation preventing them from discouraging employees from joining, on how to manage auto enrolment for their older, low paid workers.