Automatic enrolment – don’t leave it too late
The responsibility for complying with the employer duties rests with the employer.
The Pensions Regulator has a range of powers to tackle non-compliance including serving fixed and escalating penalty notices. Figures published recently show an increase in the number of fines issued to employers who did not comply with their workplace pensions duties on time.It seems there are underlying reasons for the increase in the use of enforcement powers. Larger companies, many of which have existing pension schemes in place and resource to dedicate to the task, were the first to implement automatic enrolment. Smaller employers, who are now going through the process, are different. There are more who, despite the messages to prepare early, leave it too late.
What employers need to know
Neil Morrow director at The Employee Benefits Partnership (The EB Partnership), and an auto-enrolment and employee benefits specialist says, ‘all UK-based companies have been assigned a ‘staging date’ based either on the number of employees or, for companies with less than 30 employees, the PAYE Reference Number. Companies can confirm their staging date on The Pensions Regulator’s website’
The top five things Neil says to consider are:
1. Getting ready
Once your staging date is known, begin planning how to address the new requirements.
- Is there a company pension scheme set up already?
- Is it compliant with the revised pension rules?
- Does the provider want to work with you and your employees?
For the first time in my 20+ years in financial services, I am concerned that SMEs may struggle to find a pension provider for their pension scheme. A market leading pension provider has already stated that it will not accept any more auto-enrolment schemes without long lead times. This will become increasingly common and SMEs that leave their requirements until the last minute risk facing a capacity crunch and hefty fines.
In 2014, about 33,000 businesses staged schemes – roughly the same number that Standard Life has put in place since the early 1970s. In the 2015/16 tax year, 153,000 small and micro businesses employing fewer than 50 people will need to stage, with nearly 617,000 similarly sized employers the following year.
These large numbers clearly show that the SME sector could struggle to comply in the time left to complete the task.
2. Choosing a provider
SMEs need to demonstrate to their employees that the pension scheme on offer is the right one for them and the company. Be prepared to gather the following:
- evidence that the initial provider selection had merit; and
- evidence that the scheme and provider remain appropriate on an annual basis.
NEST was created to address the volume of new pension schemes in the market, and at the date of writing, it is the only provider obliged to accept any application for a new auto-enrolment compliant pension scheme for business. This does not however mean it is the best provider for every SME trying to adopt the ‘easy option’.
When choosing a scheme, a range of factors should be considered:
- identifying a suitable provider willing to take all employees, or whether to offer more than one provider for each employee group;
- checking that the default investment is suitable for your business; and
- guaranteeing that the required administration services are available to fulfil legislation compliance.
3. Employer responsibilities explained
All employers are legally obliged to:
- set up and register a pension scheme suitable for auto enrolment;
- assess staff eligibility at every pay period; automatically enrol and make contributions for all eligible job holders; enrol and make contributions for
- non-eligible jobholders who wish to join; manage auto enrolment including the joining and opt-out process; and
- keep records on how they have fulfilled their responsibilities.
Software is available to help manage all of this. It will categorise the workforce and calculate the contribution required from both the company and the individual in each payroll period.
Many companies in the market offer software solutions.
- Insurance companies – solutions offered by the scheme provider (with some exceptions). Often no explicit cost, though this is not guaranteed.
- Payroll software – all the main providers have a solution however, even the very largest providers have been a little slow coming to market and typically levy an additional cost.
- Payroll bureau – many bureaux use third-party software so the observations above apply.
- Stand-alone auto-enrolment software available from many providers, each with their own pricing module.
Neil advises a little caution around ‘free’ software offered by insurers as part of a package, ‘the EB Partnership has already witnessed the drawbacks of this solution: a client experienced service and technology issues with a main provider we have recommended that they move away from it. We have our own auto-enrolment assessments and communication solution so we are able to move between providers more easily.’
However, in most cases SMEs won’t have the luxury of falling back on their own assessment tools. Bear in mind that using a third party or a payroll-based solution, means that you are not tied to the insurance company offering the pension scheme.
4. Dealing with compliance
In terms of ‘the legals’, once you have reached your staging date and delivered the scheme, there is a responsibility to confirm compliance by notifying The Pensions Regulator.
The requirements are:
- employers must provide certain information about how they complied with the automatic enrolment duties, such as the number of employees automatically enrolled and the scheme(s) used;
- a declaration of compliance must be completed even if there is no one to automatically enrol. Declaration is mandatory and employers that fail to do it on time are likely to be fined; and
- the declaration deadline is five calendar months after the staging date. Declaration provides a snapshot of the workforce on the staging date. The declaration can be completed online. It can take a while to complete, so you should set aside plenty of time.
5. Communicating with employees
This is arguably the most important element to get right. Remember that all of this work ultimately delivers employees with a fantastic benefit. We encourage employers to use communication letters, produced by solution providers, as a minimum to comply with the requirement when delivering the scheme.
The EB Partnership have offered employee seminars, online communications, payslip messages and one-to-one meetings when delivering the new auto-enrolment solution. Much of this will incur additional costs but, with a little imagination, the result can be a really positive, valuable benefit that will be appreciated by employees in the long run.
More information can be found at:
The original version of this article was published in the October 2014 Finance and Management magazine.
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