Top 5 tips for auto enrolment
Auto enrolment, workplace pensions, these may well be terms that you have heard increasingly on TV adverts, radio stations and newspapers; notably on TV with people such as Karen Brady and Theo Paphitis stating that ‘They’re all in’.The process which began in 2012 is now reaching the SME market and the complexity of the process is sure to increase.
The Pensions Regulator recently started writing to all employers telling them when they must comply by and this is known as their staging date. These letters are still being sent out and, to all businesses and you should have received yours by the summer of 2015.Daniel Foy is the auto enrolment specialist at Astute and is currently featuring in the March/April 15 edition of the Business Clinic in Lancashire Business View’s magazine. Having come across many attitudes, concerns and questions on auto enrolment and he has put together his Top 5 Tips to help you avoid the common problems:
1) “I don’t want to do it, it doesn’t apply to me so I’ll just leave it”Wrong, auto enrolment applies to every business in the UK, no matter what size or structure. There are exemptions which mean you do not need to carry out all of your duties however, unless you communicate this with The Pensions Regulator and they agree that you are exempt, they will treat you as non-compliant, sending you letters, fixed penalty notices and then daily penalties.
2) “When should I start planning for auto enrolment?”The sooner the better, ideally we would say that you should start 12 months prior to your staging date to ensure that you have enough time for any problems to be resolved. Even if you already have a company pension scheme you need to find out if it is a qualifying scheme for Auto Enrolment and if it can be used going forwards.
In many cases it cannot and there may be costs to enable this option. Alternatively, if a pension provider does not see it as profitable to them, they will simply tell you that you must go elsewhere for a suitable scheme. Allowing time to liaise with pension providers is a key feature in the process and can often take time to resolve. Another problem here may be your payroll. Some software requires that you input the pension details 2 months prior to your staging date, this means that the scheme must be set up and in place at this point.3) “I’ll just use Qualifying Earnings like everyone else”
There are four different methods to base your contributions on. The first, and most popular is Qualifying Earnings. This includes everything such as holiday pay, overtime and statutory sick pay between a band of £5,772 and £41,865 (2014/2015). The contribution levels for an employer can be phased from 1% depending on your staging date up to 3% by the 1st October 2018.Although Qualifying Earnings is the most common option, there are also three self-certification methods you can use. The method which you choose going forward will dictate the costs to you as an employer and we have seen in the past that the effects of choosing the wrong method can result in thousands of pounds a year being spent over and above what was needed. For those companies wanting to keep their costs to a minimum with Auto Enrolment, the contribution method is a key area to look at.
4) “What’s the cheapest scheme out there? That is the one I want”When looking for a pension scheme the same questions will commonly come up. What are the costs? What can these be invested in? And how secure is the pension provider? One question, which in the past hasn’t been required, is how the scheme fits into my day to day running of the business?
With the new auto enrolment legislation, an employer must assess the workforce each pay run and communicate with their chosen pension provider anybody who has been enrolled into the scheme and what contributions need to be paid for each member. This process is typically done within payroll, however you must ensure that your payroll software will allow it, what they will charge for it and how long it will take.A scheme that fits now includes finding a compatibility between your payroll software and the pension provider to ensure that your payroll process remains efficient and cost effective to your business.
5) “I don’t have time to stop and tell the workforce about it”One of the biggest problems here is that employees will see the contributions being deducted on their payslips, ultimately reducing what gets paid into their bank. If you do not prepare them for this it could cause upset within your workforce and lead to you having to spend time answering a number of questions on what Auto Enrolment is and why they have been paid less.
Certain communication to staff is a compulsory part of auto enrolment and not sending this out can result in fines from The Pensions Regulator. One of your employer duties is to communicate with your employees and promote participation in the scheme, and for this reason we suggest sending more than just the compulsory communications.The Astute service aims to provide flexibility, recognising that not all businesses will have the same needs and tailoring what we provide to what you need, meaning you won’t pay unnecessary costs.
Many of our clients have taken up different services, some choosing to receive full advice and recommendation for the most suitable workplace pension scheme for their business, other choosing for us to help to set a scheme up and implement the data into their payroll software. We have also offered an ongoing service, supporting them with any employee queries, uploading their files to pension providers and carrying out a full annual review to ensure that the scheme remains suitable for their business.For many clients we use our Cost Analysis tool to estimate the costs of auto enrolment contributions to both them and their employees, allowing them to factor this into their budgets going forwards and making sure that they are choosing the most suitable contribution method possible.
Another popular service is our presentations to staff, communicating directly to them about what auto enrolment is, why it is here and what it will mean to them. This means that any questions they have can be directed to a Financial Adviser, rather than the employer who may not necessarily be able give a response.
Auto enrolment has quickly become a minefield, and not one to be tackled half-heartedly. Our biggest tip, do not underestimate auto enrolment, it will not be disappearing so make sure that you are prepared and you understand the consequences of your decisions for your business.