We’ve known for some time that in future employers will be obliged to provide a contributory pension scheme for employees, and that rather than opting in, employees will only be able to opt out.

We’ve known that the timetable for implementation of this scheme depends on the number of employees on the payroll, that very large employers are caught from next October, large ones from 2013, medium-sized from 2014, and all employers by 2016.

We’ve known that over time, the minimum employer contribution increases from its 1% introductory level to 4%.

What we really haven’t known is the devil of the detail.  Just how “automatic” is the auto in auto-enrolment? Are all employees caught? What kind of pension scheme should be used? Does the employer actually need to do anything?

The first and last questions are related, and unsurprisingly, the answers are “not very” and “yes” – and allied to the “yes”, there are some pretty draconian penalties for the employer who doesn’t fulfill his obligations.

A blog isn’t the place to list all the problems the employers going to face, but here are a few tasters:

• being a small employer doesn’t guarantee you’re not caught until 2016 – some will be caught as early as March 2014.
• employers will need to advise employees about automatic enrolment, the effective date, scheme contact details, and contribution levels, how tax relief will work, the employees’ opt-out rights, what happens if they opt out but choose to opt back in – all before the obligatory start date
• not all employees must be auto-enrolled, just those between the age of 22 and the state pension age – but all employees must be notified of the scheme, as those not compulsorily opted-in have the right to do so voluntarily
• employers mustn’t counsel employees to opt out – that’ll result in heavy penalties – even when it’s obvious opting in isn’t in the employee’s interest (think low-paid workers whose pension entitlement will be enhanced by pension credits to bring it up to a de minimis level – their pension contributions will simply reduce the degree of enhancement, so they’ll have paid something for nothing)
• employees can only opt out once they’ve been enrolled – so they will inevitably pay at least one contribution which may be refundable

Then there’s the scheme itself.  The easy answer, especially for employers with no existing pension scheme, will be to use NEST , but it won’t suit everyone. If there’s an existing scheme, it may be possible to use it – but there may well be problems that result in the existing scheme being maintained for some employees whilst NEST is used for others.

Obviously the employer needs to consider the financial implications of a compulsory scheme – but it’s not just the cost of the employer’s contribution. Can the business payroll system handle the contributions? Do the staff operating it actually know sufficient to run it? Is the HR function (if it exists) able to absorb the extra workload?

If you’re an employer reading this and blanching at the thought, have a look at auto-enrolment  – and then get some specialist advice!

ps – there’s a suggestion floating around that due to current economic woes, the timetable for implementation may be extended. We can but hope.