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Aon Hewitt Highlights Unintended Consequence of Auto-Enrollment Regulations

Posted on 22 Aug 2011

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Aon Hewitt, the global human resource consulting and outsourcing business of Aon Corporation, has drawn attention to an unintended consequence of the existing auto-enrolment legislation and is calling for a change in the Pensions Bill before it comes into force.

The issue revolves around the different definitions of a jobholder and the need to track employees' status on a continuous basis in order to catch them as they become 'eligible'.  

Many organisations are seeking to make this process more straightforward by taking the view that they will extend auto-enrolment to everyone, regardless of earnings or age. However, the legislation requires the employer to recognise these different categories of worker as having their own distinct entitlements and that they must therefore be treated differently in even a 'simplified' structure.

What this means in practice, is that employers cannot give non-eligible jobholders and entitled workers the one month to opt-out following auto-enrolment - they would need to be treated as a normal leaver.

Similarly, if the employer - with the aim of making the refund process easier for opters-out - is planning to hold onto contributions for an extended period after auto-enrolment, this cannot apply for non-eligible jobholders and entitled workers, nor can they be put back in the position they would have been in had they not joined.

Gail Philippart, principal consultant at Aon Hewitt, said: "We would be surprised if this was the intention of the legislation, but as it is in the Act this situation cannot be dealt with by just tweaking regulations. We would need to see a change to the legislation itself to provide a more practical and pragmatic solution.

"In the meantime, employers have no choice but to plan with this and other complexities in mind, and work as closely as they can with their service providers to build an effective and robust process to make sure they are complying."

Gail Philippart continued:?"Using an online employer portal is one way to ensure that eligibility status is tracked, as well as offering a way to simplify the processes that need to be built between the various payroll, HR and pensions service providers by coordinating them though a single hub."