By Simon Fletcher
As a chief executive officer of a business in the financial services sector, I have been dealing with the introduction of auto-enrolment for our clients for some time, but I can also speak from an employer’s point of view, having to go through the process ourselves.
To date, we have seen circa 43,000 of the UK’s biggest employers progress through staging and, despite them having both HR and payroll resources, many have struggled, with around 40 per cent already reviewing what they have put in place. Now it’s time for the smaller employer and with companies with as few as five employees reaching their staging date from June 2015, it’s time for you to address this issue.
We witnessed a 600 per cent increase in the regulator’s use of enforcement powers and fines in the last quarter of 2014 and fines start at £400, but then a day rate applies depending on the size of employer so can quickly escalate to a significant sum if issues aren’t addressed.
More than 1.1 million companies will hit their staging dates over the next two years, and this year alone we will see more new pension schemes needing to be set up than the past 65 years combined. If you take one message away from this, then it is don’t delay your preparations.
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I will share my top 10 tips to prepare employers for the journey ahead.
1. It does apply to you — auto-enrolment is a statutory requirement that applies to every employer in the UK and that includes you, no matter how small a business you may be. The Pensions Regulator is writing to more than one million employers in February, reminding them that their obligations will soon come into effect.
2. The buck stops here — these are employer responsibilities so you are responsible for their delivery and if it goes wrong you will be responsible for putting it right, including the cost. You can outsource some of the delivery to others but check the terms of engagement; many still take no responsibility for their fulfilment. Think about whether you are offered a contract, its terms and service-level agreements.
3. Check your staging date — you will have been contacted by the regulator informing you when your obligations commence, but you can always check by logging onto its website and putting in your PAYE reference number.
4. Give yourself sufficient time — the most common thing we hear from employers is that it takes far longer than anticipated to get things set up and to manage their duties on an ongoing basis. The rregulator recommends that you give yourself 12 months to prepare, so if you are already within six months of your staging date you have a lot to do.
5. What are your key drivers? Do you have the time and capability to manage this in-house and are you prepared to assume the responsibilities that go with this approach or should you look to outsource its delivery? The cheapest option may end up costing a lot more in the longer term.
6. My provider will deal with it — many employers mistakenly believe that an existing pension provider will deal with auto-enrolment, but the chances are they won’t. Many existing schemes do not qualify with the new rules or the provider simply isn’t interested in offering terms for your auto-enrolment population. Around 40 per cent of the employers who have gone to NEST so far were rejected by their existing pension provider.
7. My adviser will deal with it — setting up a compliant auto-enrolment solution can be quite complex and many advisers don’t offer this service. Don’t assume they will be helping you just because they have provided you with pension advice in the past. Some may provide help in finding a new scheme but that’s only about 10 per cent of what’s needed.
8. My accountant/payroll will deal with it — again, don’t assume that they will, and for those that do you need to understand the parts they do deliver but crucially the parts they don’t. More than one employer has been fined because they didn’t fulfil their statutory obligations assuming the software they had purchased had dealt with auto-enrolment.
9. Make sure the solution you consider works with your business — there are a growing range of auto-enrolment options in the market and they offer different levels of delivery as well as a range of costs. Make sure the one you choose fits with your business structure and understand what aspects of your employer responsibilities it covers and those that remain with you.
10. Who in your business is going to manage auto-enrolment? As well as needing some form of software, someone has to have both the time and knowledge to compliantly run this within your business. You also need to ensure you have cover for this person. Your responsibilities don’t cease because they are on holiday, off sick or leave your employment. You need to consider all the costs that this will incur before deciding upon what is the best route for you to take.
I hope you find my thoughts a useful template to plan your enrolment journey, but if you need any more assistance please use our free contact helpline for you or your head of HR and we will be happy to provide some further guidance.
Simon Fletcher is chief executive officer of Johnson Fleming, a workplace pensions and employee benefits specialist, providing outsourced support to UK businesses as they navigate their way through the benefits landscape.