Mark Leftly: Success for auto-enrolment looks far from automatic

Westminster Outlook The Pensions Regulator’s quarterly update, “Automatic Enrolment: Compliance and Enforcement” (for the period April to June) is as gripping a read as its title suggests.

At seven pages, though, getting from cover to cover is at least a brisk exercise and contains a warning that auto-enrolment might not turn out to the “stunning success” that the pensions minister Steve Webb has claimed.

Auto-enrolment started in 2012, forcing companies of all sizes to put staff into a pension scheme, unless employees either opt out or they earn less than £10,000, which means most part-time workers miss out.

Employers with fewer than 30 staff don’t start the scheme until 2017. Currently, companies with more than about 60 staff must comply, although even those with up to 499 workers only got going in January.

The bulletin notes how an employer was caught out by the changes. Managers wrongly thought they could defer their start date from last November to 2017. The regulator forced it to launch the scheme and backdate contributions. November was when businesses with 500 to 799 people had to get started, so this was hardly a small enterprise. The company surely had the back-office departments to understand and navigate the new system, but still got it wrong.

Indeed, the regulator has closed 917 investigations into employers since 2012 – nearly a quarter between April and June this year. Notably, there have been 23 occasions when the regulator has directly used its powers to ensure compliance, such as inspecting an employer’s premises.

Simon Kew, pensions director at Jackal Advisory, is concerned these cases involve “super employers” that should have found the switch quite simple. Mr Kew told me: “I can’t help but see significant issues when the SME/micro-employers are forced to automatically enrol … If the regulator has used its formal powers 23 times, it goes to follow that the problem will increase exponentially from 2015 onwards – not least due to the numbers of staff required to keep on top of non-compliance with the regulations.”

In other words, auto-enrolment could wreak havoc on the small businesses on which the economy depends.

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