How far do employers' duties extend? Jan 15, 2018Views: 1175
“There is a general assumption that once employers have met their initial duties by enrolling eligible jobholders into a compliant scheme, re-enrolling those who had opted out every three years, and enrolling new workers as and when they start work, this is largely ‘job done’”.
Can employers simply sit back at this point and congratulate themselves on a job well done, or are there constant issues that employers need to be made aware of?
A Joint Policy Paper on Eversheds Sutherland and Royal London explores this question. They conclude that employers in general, and larger employers in particular should stay focused when it comes to automatic enrolment. Employers in other countries are facing legal action as they are deemed not to have done the right thing when it came to their employees pensions. This should be a wake up call for employers, as the employers of today should meet higher standards rather than the legal minimum requirements.
Employers who wish to protect themselves against these risks may wish to consider the following key areas identified in the paper:
- Take due diligence when choosing a plan. Go beyond simply selecting any ‘compliant’ plan.
- Recognise that auto enrolment relies heavily on ‘defaults’ and that some employees may be very passive in the whole process; in choosing a workplace pensionscheme, employers may therefore want to look at service to members, the default fund and other investment options. Employers may wish to engage with their employees to ensure that they are aware that their statutory minimum contribution rates may not be sufficient to enable workers to afford to take their retirement when they would like to. Larger employers in particular might be in a position to go ‘the extra mile’ in this regard.
- Employers should review the scheme on a regular basis. Although there are no obvious UK precedents for legal action against employers who choose an under-performing pension scheme, US employers have paid out a total of over $350 million to settle claims relating to failures in retirement plans for employees.
- Employers should consider the position of employees who are members of the scheme but are non-taxpayers, as somepension schemesdeliver tax relief through the ‘net pay arrangement’ (NPA) which does not deliver tax relief to non-taxpayers. In contrast, the ‘relief at source’ process which does; employers could be vulnerable to challenge lower paid workers if they choose an NPA scheme without good reason, since pension received by the lower paid worker in retirement is likely to be smaller as a result.
- Ensure that record-keeping is of a high-standard Anygood payroll softwarecan help with this.
Written by Holly McHugh |BrightPay Payroll Software
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