Evaluating the government's technical AE changes

The changes, released earlier this month, have been welcomed for tackling inconsistencies in pay reference periods and contribution deadlines, simplifying the process for employers. But the DWP has been criticised for not tackling the tricky relationship between automatic and contractual enrolment.

Henry Tapper, a director at First Actuarial, said the DWP had managed the consultation well. 

He said: “AE is intractably difficult but the changes pick some low-hanging fruit. It is as much as we can do for now.

"To put a red line through auto-enrolment 12 months in would risk alienating those who spent millions on complying before.”

Martin Freeman, a director at JLT Employee Benefits, said the government had struck the right balance between helping employers who have not yet staged and not forcing those who have to change what they have already done. 

“[It will give employers] straightforward rules with as few ifs, buts and maybes as possible," he added.

Contractual enrolment v auto-enrolment

The government's recognition that the rules require further easement to prevent “illogical compliance” should have resulted in further action, according to Andrew Cheseldine, a partner at LCP. 

“There are employers who are rightly concerned the risks of complying with AE are greater than the risks of not complying.”

Though broadly supportive of the changes, Cheseldine was frustrated by the lack of redress on the issue of contractual enrolment. 

Large employers with a contractual scheme are forced into thousands of additional communications each month with employees who choose to opt out of their scheme, but may become eligible in the future. 

This anomaly could cause problems for trustees using group personal pensions for contractual enrolment.

The EU’s distance marketing directive prevents an individual being placed automatically into a financial product unless there is a legal requirement to do so.

“There is no legal requirement to auto-enrol someone unless an eligible jobholder,” added Cheseldine, “which means contractual enrolment of GPPs may not work or you have to be very careful how you do it.”

The DWP could resolve this without negative publicity, additional employer cost or a reduction in numbers of auto-enrolled employees, said Cheseldine, because the obstacle hinges on the individual being an eligible jobholder.

“All they need do is extend the definition of eligible jobholder to include anyone the employer says is an eligible jobholder and the conflicts between contractual and auto-enrolment disappear.”

Neil Latham, a principal at Punter Southall said it was unfortunate “the policy response has been to tweak the technical details, rather than learn the real lessons of the first phase”. 

The next cohorts will be considerably different from the first, as smaller organisations lack the internal resource of the larger employers. Few have dedicated HR or pensions departments and the financial director may fulfil a number of roles. 

"Without significant changes to make AE much easier, non-compliance will be the normal position,” said Latham. “For AE to work with much smaller employers over the next 12-18 months, we need some lifesaving surgery to make compliance become the default state.”