I was talking to an auditor recently who had questioned why someone who cleaned her client’s office in the morning and was on £120 pw had been considered an eligible jobholder – and auto-enrolled.
It turned out that the cleaner submits an invoice every month except the month she takes a holiday when she submits two at once.
Since 2x £120x 8 is more than the pro-rated earnings limit for her AE pay reference period (phew!), she had spiked into eligibility the last time she produced a double invoice.
Her payroll hadn’t picked up on this, missed the chance to postpone her staging and now she was in, though she didn’t know it – and there was nothing her employer could do to get her out.
How many low paid employees (let alone personal service workers like this lady) have the odd month which makes them eligible?
How many AE modules will pick up on them and include them on the AE monthly schedule – an eligible jobholder ad infinitum?
How many employees and personal service workers will query this?
How many of these people will be enrolled into a net pay scheme?
How many will miss out on the Government’s tax incentive that they would have got if they’d been in a relief at source scheme?
Answers to these questions are easy to garner- we need to make a public information request and find out.
The FT estimated (using de Vere numbers that I sense checked) that net pay was a real problem for the low paid. They reckoned that the total relief being missed out on was around £85m, that’s about 1.6m people on £10k. This is a tough stat to verify, but if you include all those who’ve been spiked into eligibility and are still enrolled as they haven’t got the wit , understanding or energy to get out, you get a sense of whey the NET PAY problem is a real problem – and not de minimis – as some have suggested.
Of course there are ways that large employers can get round the problem, salary sacrifice being one (though this is hazardous for those on the minimum or even the living wage), pension scheme rules can be used to kick out those contractually enrolled but as my payroll guru reminds me.
going back to the public sector of course their employee contributions are much higher so the loss of tax relief is much greater, although calculating the loss must be a nightmare given such structures as the LGPS where there are 14 contribution levels
The De Vere numbers for the tax incentives lost by low earners on net pay are higher than the private (£100m plays £85m) ; some would say the public subsidy on public sector pensions is so huge what’s the loss of a little tax.
But the majority of the low-paid in the public sector are peripheral workers on short-term and/or part time contracts that do not give them admission to defined benefit arrangements
These disconnected public sector workers will find their way into net pay money purchase schemes where the lack of tax relief is material to their ultimate benefit (at least in terms of their pension spending power).
They too are being unwittingly enrolled much as they became PPI policyholders.
.Professional Pensions’ buzz survey leads this week with the question
“Should the minimum earnings threshold for auto-enrolment be lower than £10,000?”
I think it already is.