Pensions for Temp Workers

09/06/2009

The government wants more of us to put money aside for our retirement by building up individual pension pots. It’s a laudable aim, particularly when it looks to improve the lot in retirement of more than 1m temporary workers. The government argues that these workers often miss out because of the peripatetic nature of their working lives.

However, a report published earlier this month by the British Chambers of Commerce (BCC), has highlighted dangers to the industry of the government’s approach.

The BCC report, ‘The impact of the Pensions Act 2008 on the Flexible Labour Market’, in which recruiters played a key role, raised concerns that the Pensions Act, given Royal Assent earlier this year, could do serious damage to agencies.

So what are the Act’s main features?

Under the proposals, every time a temporary worker starts a contract they would automatically be opted into the scheme. They would then be required to make a 3% contribution of their salary (above a certain level not yet decided) into their temporary workers’ personal pension pots.

The Act also requires temporary workers to contribute 4%, a significant cut in take-home pay for those sometimes on relatively low wages. Agencies would then have to offer workers the choice of opting out, and where they chose to do so refund what they have paid in.

On the face of it, this doesn’t appear particularly onerous, particularly as the Act is not due to be implemented until 2012. However, while Tom Hadley, external relations director at the REC (Recruitment and Employment Confederation), accepted there are good reasons to encourage agency workers to put money aside for their retirement, he questioned whether building a pension pot “was a priority for workers who might only be doing agency work for a few weeks”.

Companies are arguing that the proposals lack common sense. "Workers will come to us and say they don’t want to sign up to the scheme, and we will have to say, ‘it’s the law’. It doesn’t make sense. We are also worried about the red tape involved in opting workers out of the scheme".

“Having more than 100 temporary workers who are coming and going, most of whom won’t want to stay on the pension, is going to put a massive administrative burden on us,” According to BCC research, 50% of agency workers would opt out after being automatically enrolled.

The government itself estimates the cost of administration at £10 per worker. Based on this, and assuming an agency issues 250 P45s a week, the BCC calculates a single agency’s cost to be an eyewatering £130,000 a year.

BCC pointed to the financial burden on agencies of the 3% contribution. “The actual monetary cost to an agency will be untenable and will be very difficult to pass on to clients when everyone is looking for reduction.”

Liz Longman, UK director of TEAM (The Employment Agents Movement), said she feared that some agency workers could be discriminated against, as employers could choose those who had opted out and were therefore cheaper.

Though critical of the government’s proposals, many recruiters support the principle of better pension provision for agency workers.  They would like to see the burden of red tape removed from recruiters and transferred to those who make money out of the scheme — the pension providers.

Workers should have the choice of opting out before a temporary assignment begins rather than being automatically enrolled and then have to opt out, suggested Hadley.

The industry is hopeful that the DWP (Department for Work and Pensions) and the Personal Accounts Delivery Authority, which will oversee the scheme, will listen to the concerns of recruiters.

A DWP spokeperson said: “The personal accounts scheme itself will be simple, low cost and easy for any employer to use. It is being designed specifically for its target group and will be run by a not-for-profit trustee corporation.”

The 2012 implementation date may yet seem some time off. But with the 3 June date for the end of the consultation process approaching fast, and legislation due to be finalised by the beginning of autumn, this is deceptive.