This is a great step forward, however from a SME owner’s perspective it also presents a big challenge. Every single employer in the UK – from the likes of Google down to the local cafe – are legally obliged to enrol all eligible employees into a workplace pension scheme. That may sound straightforward but there is a huge amount of work involved in ensuring a business is prepared for meeting its new auto enrolment responsibilities, as well as for handling rolling duties thereafter. And this workload weighs especially heavy on smaller firms.
Despite The Pensions Regulator’s advice that businesses should start preparing at least a year in advance, it’s clear from the regular ‘distress’ calls we’re receiving on a weekly basis that many businesses are far from ready for auto enrolment, and are not aware of the full extent of the preparation involved
So with more pressing business matters on the boardroom agenda, why should business owners start thinking about auto enrolment now?
Firstly it’s the sheer amount of work involved – work which will be unfamiliar territory for most SME owners. There are 33 administrative tasks to conquer, which our recent report with the Centre for Economics and Business Research estimates to take an average of 103 man days per firm and which will cost up to £15.4 billion for businesses across the UK. That’s a huge drain on resources,
On top of this, 2014 is being tipped as the year of the ‘capacity crunch’. With 38,000 businesses due to stage in 2014, the number of companies seeking schemes from pension providers is set to far outweigh the number available. It’s crucial for companies to get in a provider’s queue straight away to make sure they secure a scheme for employees. Hefty fines await employers who don’t meet their auto enrolment requirements – whatever the reason.
To make sure your company is fully prepared for auto enrolment, it’s vital to start thinking about it now. But where do you start? The key processes you need to undertake are explained below:
Determining your ‘staging date’
Firstly, it is very important to determine your ‘staging date’. This is the date set by The Pensions Regulator by which every employer in the UK must have auto enrolment processes in place. Your staging date is determined by the size of your company’s payroll and will fall between 2012-2018, with bigger businesses staging first.
If you realise you’re not going to be able to meet your staging date, you can choose to postpone for up to three months. However this doesn’t mean you delay your staging date – just the start of the pension scheme. If you do choose to postpone, it is essential to keep staff updated with your plans.
Once you have determined your staging date, it is important to nominate a point of contact within your business to communicate with The Pensions Regulator. It’s also key to appoint someone to keep all your employees informed about auto enrolment – from explaining how they have been categorised to how the pension scheme works. Effective communication is also important to avoid an influx of employee queries when auto enrolment takes effect.
The pension scheme
You must review any existing pension arrangements and determine whether these can be adapted for auto enrolment. The next crucial step is choosing a pension scheme. There is a huge burden of responsibility for employers when it comes to selecting a pension scheme in which employees’ money will be invested and this process can be quite daunting for employers who aren’t familiar with the pensions market – which is the majority!
You must classify your workers into four categories: eligible, non-eligible, entitled and other. This means reviewing whether employees meet the conditions necessary to be eligible for a pension scheme, which are based on age and earnings. Only eligible employees must be automatically enrolled but entitled workers and non-eligible jobholders can join the workplace pension scheme upon request.
Once employees have been auto enrolled, you must start deducting contributions from their pay as appropriate. You also need to pay contributions on behalf of eligible employees. It is also necessary to re-assess workers at each payroll. It is also important to remember that employees ages and wages change, meaning you have to reclassify employees all the time, potentially every time you run the payroll.
A process must be implemented for managing opt-outs. Around 90% of the calls to our employee helpline have been to discuss opting out, so it’s also important to consider how to handle these conversations. Employers can face hefty fines if they even imply that an employee should opt-out.
As this brief overview shows, there’s a lot to consider to ensure that you are auto enrolment ready and avoid incurring late penalty fines. And there are over 500 pages of guidance notes to read from The Pensions Regulator to even understand how to do this!
The bigger businesses that have already ‘staged’ have had dedicated HR, finance and even pensions departments in charge of auto enrolling employees, and even with that support 89 big businesses have been investigated for non-compliance. Smaller businesses without this resource therefore need to carefully consider how they are going to handle the auto enrolment hurdle. Make sure you’re clear on exactly what’s involved, and in plenty of time. And if in doubt, speak to a business adviser or look for a partner who will take on the process for you.
David White is Managing Director of Creative Auto Enrolment, the end-to-end auto enrolment solution for businesses.