Pensions auto-enrolment is now a reality and mid-sized businesses must start planning in earnest. What are the main steps involved? Maggie Williams explains

At a glance

1 Auto-enrolment has multiple staging dates

2 Every firm needs to look at its own circumstances

3 The definition of eligible workers is wide

This year sees the start of an enormous change in workplace pensions that will have a ripple effect both on other areas of reward and on overall business planning. Pensions auto-enrolment has been a long time coming. When it was first mooted in 2002, and eventually made law in the Pensions Act of 2008, stock markets were soaring and UK business was booming.

Now that employers must take action on auto-enrolment, the economy is in a very different place. And while encouraging staff to take more responsibility for their retirement is still as pertinent now as it was in 2002, being able to afford to save for a pension is much more of a challenge both for employers and employees.

But the legislation is not going to go away. Despite delays, political point-scoring and countless reviews of the legislation since 2008, the first companies will start auto-enrolling in October this year.

At this stage, only the very largest companies will be expected to comply, but between now and March 2014, all companies with more than 250 employees will be drawn into the legislation. Each company will have a staging date that determines when they must comply with the legislation.

Getting auto-enrolment right is not an overnight exercise. The biggest mistake any company can make is not allowing sufficient time to prepare. Most advisers recommend taking at least 12 to 18 months to ensure that all essential aspects of auto-enrolment have been covered. There are penalties for non-compliance and The Pensions Regulator has been tasked with ensuring that all companies comply.

One of the biggest difficulties for the HR directors of mid-market companies is that no-one has yet experienced auto-enrolment. There are very few real-life examples on which employers can draw to help them build their own auto-enrolment plan.

This is particularly challenging, given that many of the challenges posed by auto-enrolment lie in the small details of the legislation, rather than in its broad framework. Over the next three pages, Reward has created some fictional companies that illustrate many of the issues associated with auto-enrolment that real life mid-market companies will need to consider.

Note: the information in this article is dated June 2012. Legislation is still evolving, so check The Pensions Regulator’s website for further updates.