Examining the Impact of the UK Pension Act

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The beginning of October marked one year since legislation came into effect in the UK requiring employers to enroll their employees into a pension scheme. Before we examine the impact, a bit of background.

The Pension Act requires employers to automatically enroll all their employees (both permanent and temporary) in a pension scheme in which the employee would contribute an initial 1% with a matching contribution from the employer. The opt-in is perhaps the most significant part of this as employees have to consciously choose to opt out. The hope behind the policy was that this would lead to a much higher number of people saving.

The change was met with an air of indignation from the recruitment industry, fresh off the back of implementing the Agency Worker Regulations (AWR), with a strong concern that they would end up having to shoulder increased administrative costs tracking which employees enrolled and who opted out.

Because enrollment of employers is staged by the size of the payroll the process is not complete until 2017 and therefore it’s too early to draw definitive conclusions. But as with AWR, many of the initial fears have not come to pass. The opt-out rate has been much lower than expected – a recent report showing rates hovering at 9%. There has also been no appreciable impact on demand for temporary workers – August saw the highest growth of temporary billings in fifteen years.

The focus for IQN, as a leading VMS provider, has been helping clients to accurately track and manage these costs. The biggest decision a client has to take is how they are going to manage these costs. Whilst of course it is possible to track the exact costs (complicated by the fact that the 1% only applies on a percentage of earnings and only applies to workers who are PAYE) companies need to make sure that the costs of managing and tracking the additional costs are not higher than the actual contribution being remitted. Depending on the make-up of the workforce, it may be most cost effective to either agree to pay a flat 1% for eligible resources or apply an average rather than managing to the exact costs. For some companies, this may require a shift in thinking on how to manage temporary employees but it’s always important to remember that when you manage temporary employees you are managing resources that are not on your payroll. As always, IQN is ready and willing to spend time talking through how a VMS can be best deployed to navigate the changing regulatory landscape.

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