Common Auto-Enrolment Pitfalls

AE has transformed the retirement saving of a generation. There are now more than 11 million UK workers making provision for life after work through AE.  

 

Though we’ve come a long way in a dozen years, there is more work to be done. The last government was committed to extending the AE reach to younger people and all incomes. 

 

AE would no longer exclude those under the age of 22 and the unnecessary complications of calculations based on band earnings and the lower earnings limit would be removed so contributions would be made from the first pound earned.  

 

While still under consideration, these proposals are currently on hold under the current government. 

 

 

With the complications removed, it seems reasonable to assume that common errors that occur in AE schemes would also disappear. But that is not necessarily the case. 

This is often because the employer has used alternative criteria for calculating contributions. AE is based on qualifying earnings, but many employers will have used basic pay, and that can sometimes create an error for contributions. 

 

Most employers will not be performing their AE obligations in house, but through a third party, such as a master trust or an insurance company and external payroll provider. But it is mere wishful thinking to believe that most errors will be identified solely by the provider. 

 

Admin errors generally come from a misunderstanding about the nuances of AE administration, or by relying on the payroll function which itself may have limited understanding of the finer points of all the elements of pay and AE. 

 

 

Where there’s a governance gap, there is a danger of errors being repeated. The regulator generally takes a risk-based approach to AE. It understands that mistakes will be made – especially in smaller organisations – and encourages schemes to admit to an error and put things right.  

 

But schemes that fail to make amends and become repeat offenders will incur the full wrath of the regulator. 

 

So, as your providers’ systems – AE or payroll – won’t necessarily pick up any errors. If the mistakes are down to the way you have processed the employees being enrolled, that’s on you. 

 

Dashboards has been sold as major step forward on member engagement and the Labour government has chosen to focus on the value for money project for the first phase of pension reforms. But whenever they arrive, don’t expect them to put an end to the potential risks that arise from processing AE, either. 

 

This is because they rely on data generated by the scheme and its providers. And just like in the examples above, if there are any failures, they could be replicated in the dashboards. 

 

Even then, there are still pitfalls to be mindful of. Making contributions at AE thresholds when there are more generous contractual arrangements may not attract any fines from the regulator for AE breaches, but it will generate a good deal of ill will and leave you with a legal headache to resolve. 

 

“It is therefore essential to stay on top of your checks,” says Brown. “It needn’t be an onerous task. A little and often approach will usually protect your scheme from small errors that could, if left unaddressed, pose significant risks to the employers.” 

 

For more information about Charities Pensions Club, please contact chloe@charitiespensionsclub.com