Auto-enrolment: the DWP’s consultation and practicalities for employers in the shipping industry

The background to the Government’s intention to reform workplace pension provision from 1 October 2012 is straightforward: the current size of the retired population is larger than ever before and is increasing as people live longer. State pension costs are rising and, in response, the Government seeks to encourage more people to save for retirement. It believes that one way of achieving this goal is by way of auto-enrolment, that is, to compel employers to enrol staff into a qualifying pension scheme of their own, or into the National Employment Savings Trust (NEST), so that many more individuals make a financial contribution to their retirement savings.

NEST is a trust-based occupational defined contribution pension scheme run by the NEST Corporation, its trustee body. From 1 October 2012, UK employers will start becoming subject to new duties requiring them to auto-enrol all eligible jobholders in a qualifying workplace pension scheme. Designed specifically for low earners and others who are new to pension saving, NEST will be one of the pension schemes that employers will be able to use to meet these duties. Alternatively, employers will be able to use their existing pension arrangements (or put in place new arrangements), provided they meet qualifying criteria.

The implementation date of 1 October 2012 applies to the largest employers, with medium-sized and smaller employers being phased in gradually from that date, depending on the number of employees on their payroll. The start date for each employer is known as its “staging date”. While a staging date may be more than a year away, it is estimated that putting in place the pension arrangements for some employers could take many months, as identifying those workers who need to be auto-enrolled it is not always a straightforward matter.

Following an informal consultation exercise in April 2011, on 19 July 2011 the Department for Work and Pensions (DWP) published a consultation paper and four draft statutory instruments, which set out the final shape of legislation governing auto-enrolment and employer duties. The consultation period closed on 11 October 2011.

Under the Pensions Act 2008, which contains the primary legislation on the auto-enrolment regime, seafarers and offshore workers are excluded from the new requirements to be auto-enrolled. However, the draft legislation issued for consultation by the DWP includes the Automatic Enrolment (Offshore Employment) Order 2011 (the Draft Order), under which many of these workers would be brought within the scope of the new employer duties.

The Draft Order would extend the auto-enrolment duties to employers of seafarers and offshore workers insofar as they work (or ordinarily work) in Great Britain. This means that auto-enrolment will be dependent on whether workers embark and disembark in the UK, rather than whether they are UK resident or national, or even whether they are paid by a UK employer or subject to UK tax and National Insurance.

Matters are further complicated by the fact that the NEST scheme will not accept contributions in any currency but Sterling, so shipping employers who pay in other currencies will not be able to utilise NEST.

View the Draft Order.

The unique challenges posed by the employment of seafarers and offshore workers have been cited in responses to the DWP’s consultation as reasons which should justify an extension in the time required for the shipping industry to comply with auto-enrolment. Given that these workers are exempt from the new regime under the original primary legislation, the potential administrative problems inflicted by the DWP’s current intention to include them mean that shipping clients should carefully examine their current pension arrangements.

If the Draft Order is enacted in its current form, employers with offshore employees will be subject to the auto-enrolment duties affecting employers in all other industries. Compliance entails nominating a suitable pension scheme for auto-enrolment, or using the new NEST scheme, and identifying those workers who will need to be auto-enrolled. One of the first steps is to identify the employer’s staging date, in order to establish how much time is available to put in place the necessary pension arrangements. We are, therefore, urging shipping clients to seek advice on this issue as soon as possible.

View our full briefing on Auto-enrolment and the Pensions Regulator’s detailed guidance.