Why pension auto enrolment matters
Lisa Kennery, payroll manager at Pierce Chartered Accountants and Business Advisory Group, explains why pension auto enrolment matters and what companies should do to ensure they’re compliant.
WHY DOES PENSION AUTO ENROLMENT MATTER?There are growing concerns that the state pension might not be sufficient for people to live off in future. As people are projected to live for longer, they will need help to plan and save for their retirement in other ways.
Pensions automatic enrolment – or auto enrolment - is aimed at helping to ensure that today’s workers will be provided for financially in retirement. It is described as auto enrolment because it is automatic for staff.However, it does not happen automatically for employers, who must ensure that they comply with a number of legal requirements. All businesses with one or more employees must establish a qualifying pension scheme and enrol those who qualify.
Companies have a duty to comply with the terms of pensions auto enrolment legislation by the start or “staging” date that they receive from The Pensions Regulator.Failure to comply can result in penalties of up to £10,000 per day.
Providing a pension scheme is of course beneficial to your employees and should be helpful in retaining existing staff and attracting new recruits.WHEN IT COMES TO AUTO ENROLMENT, DO YOU THINK COMPANIES UNDERSTAND ITS IMPORTANCE?
No. Many companies remain unaware of their obligations under auto enrolment legislation and the many decisions that need to be made prior to setting up a qualifying pension scheme. These involve understanding postponement rules, deductions, and properly appraising the range of pension providers available.Many companies leave the process until too close to their staging date before contacting their accountant to ask for assistance, or to confirm they can manage the process for them. This can result in a badly set up scheme.
WHAT ADVICE DO YOU PROVIDE YOUR CLIENTS WITH TO ENSURE THE BEST OUTCOME? The auto enrolment process can place a heavy burden on those managing its administration. Planning ahead and ensuring that sufficient resource is available is vital.In the early days of pension auto enrolment, companies were advised to start planning nine to twelve months ahead of their staging date. Given that we are now into the SME staging time, planning time for those who haven’t yet started is reduced to about four months. With less time to implement the necessary changes, it pays to be prepared.
Having an effective IT system in place can play a significant role in ensuring that the auto enrolment process runs as efficiently as possible. Many SMEs use HMRC’s Basic PAYE tools to process payroll. However, this system does not have the functionality to run auto enrolment. We therefore advise clients on the best systems or “work around” solutions to compensate for this.A company’s payroll department or provider will hold the key information needed to run assessments and calculate pensions, so we would recommend using payroll to control and drive the auto enrolment process in most cases.
Many businesses may need to source advice from professionals when setting up pension auto enrolment in order to ensure that they comply with regulations and that the process is set up correctly.For example, we offer a full solution; from pension scheme set-up, to ongoing administration.
The advice an employer requires to establish pension auto enrolment is non-regulated. However, if that employer wishes to provide an employee with additional support (such as transferring other pension schemes) this is regulated, so advice from a financial advisor would be necessary.A company doesn’t need to provide its employees with additional advice. However, as it’s such a vast and personally effecting subject, employers should look at going that extra step.
The Pensions Regulator currently requests a declaration of compliance report to be submitted by every company five months after their staging date. If an employer does not submit the report, or the report shows them not to be compliant, the regulator will make contact and assist them to become so within a specified timeframe. This helps identify those who are not complying at all but it does not provide a safety net for those who are incorrectly processing; companies should employ a specialist to help them ensure their set up is correct.Since it was implemented in 2012, have companies responded both appropriately and swiftly to the new legislation, in your opinion?
There have been a number of significant changes in legislation since auto enrolment was introduced in 2012, some of which are quite complex. Unless you are heavily involved in the subject matter, those changes may not be apparent and employers therefore may not have reacted appropriately.Some employers rely on their software to apply these changes. However, we have seen instances of some changes not being written into software in time, possibly leaving companies open to a fine.
WHERE DO COMPANIES GO FROM HERE? Many payroll providers are currently working on a streamlined approach when sending data to pension providers. This will help to reduce the administration time it takes to process payments and notify the pension provider of key information changes. The regulator does write letters to businesses at key times in the process, but we advise employers to regularly refer to The Pensions Regulator website (http://www.thepensionsregulator.gov.uk) for further information.
