Pension experts warn new law will increase red tape

By Freddie Dawson

- Last updated on GMT

Related tags: Pension

Pension experts warn new law will increase red tape
New legislation coming into force next year, which requires companies to automatically enrol employees in pension schemes, could prove unfairly burdensome on small food companies that have a high staff turnover, pension experts have warned.

Starting in October 2012, any employee over 22 and employed for more than three months will have to be included in a pension scheme. Employers will be hit by the contributions they will make and the additional administrative burden from increased paperwork they will incur, said Alan Stone associate director at accountancy firm Old Mill Group.

Employers with high staff turnover especially those affected by seasonal variances will be faced with a significantly higher administrative workload, predicted David Gallagher, head of pensions at law firm Field Fisher Waterhouse.

"Every time someone new goes on the books there will have to be an administrative cost from checking if they want to be a part of the scheme," ​he said.

It is an employer's responsibility to enrol every worker after three months, said Stone. The worker then has a month to decide whether to opt-out. If they do opt out, the employer has to repeat the process after three years.

The new rules will apply to part-time employees and workers from agencies that act as brokers and do not employ people themselves, said Gallagher.

Companies can be fined for encouraging employees to opt-out and not hiring candidates that refuse to opt-out, said a spokesman for the Department for Work and Pensions (DWP), which is in charge of the scheme.

The removal of the default retirement age from October this year may also lead to more employees wanting to remain in service under their employer's pension scheme, said Jay Doraisamy, pensions partner at law firm Eversheds. When combined with automatic pension enrolments, firms will have to closely examine future pension benefits and life cover, he added.

Many smaller companies may also find their software systems are incompatible or in need of an upgrade to be able to comply with the new requirements, which could be a long and costly process, warned Gallagher. The smallest companies will be hardest hit and many may find it cheaper to outsource their entire payroll, he suggested.

Companies with more than 120,000 employees across their organisations will be the first to fall under the new rules, with smaller firms following. All firms will be expected to comply with the new rules by 2016.

Related topics: Legal, Services

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