Pensions Auto Enrolment: 10 tips to help get you ready
With up to 40,000 SMEs hitting their auto-enrolment (AE) staging date this year, financial advice will be in great demand. By 2017, nearly 1 million smaller employers will have been through the process. With perhaps fewer resources than larger employers, SMEs will need the right support to find the best solution for their business.
Jamie Jenkins, Head of Workplace Strategy at Standard Life, comments: “Small and micro employers are crucial to the UK economy and employ a significant number of the people auto-enrolment is most targeted at, with many of them not currently saving for retirement. It’s vital that advisers, providers and other suppliers work together to support them in the months and years ahead. For 2014, a key priority is to improve awareness of what’s required and ensure employers are preparing well in advance.
“The first year of the auto-enrolment programme has been a great success. Let’s ensure that continues.”
Over a year has passed since the first of the larger employers started to auto-enrol employees into a workplace pension scheme and, according to DWP, it’s been more successful than expected. Their research estimates that over 90% of people who have been placed into a workplace pension by their employer are staying in. Previous DWP research had shown a likely opt-out rate of 30% of workers across all business sizes.
The following 10 top tips will help small and medium-sized businesses to get ready for auto-enrolment in 2014 and beyond.
1. Don’t leave it too late
The auto-enrolment ‘to-do’ list for employers will take some time to complete. It shouldn’t be left to the last minute. Collating data can mean sourcing information from various systems. In addition, enrolling employees to the pension scheme could involve changes to their contracts of employment depending on the joining method chosen by employers, and this would require a three month consultation period. An early start is recommended – ideally 6 to 12 months ahead of the staging date.
2. Understand your key dates
It’s crucial employers not only understand when their staging date is, but also how that ties in with other key events such as the pay reference period and payroll cut off. Documenting these dates and then overlaying the new dates when actions need to be completed as a result of pension reform legislation will help gauge the impact on the business. It will also help decision making, such as the need for a waiting period and if so, how long it should be?
3. Quality of data is key
It’s easy for an employer to underestimate the complexity of the data required; data for employee eligibility assessment, joining, contributions and opt outs. Inevitably this will come from various sources and systems. It takes a significant amount of time to do this within payroll cycles and the frequency that this data is needed also adds a layer of complexity. The quality of the data and the processes for sourcing the data for each payment cycle will be crucial.
4. Choice of contribution basis
The employer’s chosen schemes must meet a quality standard, based around a minimum level of benefit or contribution. So they need to start budgeting for any extra costs. But there’s more than one acceptable contribution basis. And they can be mixed and matched across the workforce to suit different reward mechanisms or pay patterns. What will work best for your business? The key point is that the contribution basis and definition of earnings can be chosen to suit the business, providing they pass one of four tests. Good advice here can save employers both time and money.
5. Method of contribution
Salary Exchange/sacrifice should also be considered as this can offer significant cost savings. However, where salary exchange/sacrifice is being used, this decision should be made prior to the scheme staging otherwise it can cause additional administration for employers.
6. Existing joining methods may be fit for purpose
Many employers believe they will need to change the way they currently join employees to their pension scheme. However, the existing method and processes for joining may already be suitable. For example, if employees already join the pension scheme via their contract of employment then there may be no need to introduce a different method. This can also allow all staff to be treated the same way, regardless of their age or income. But it’s likely to mean changing processes, and potentially employment contracts, to meet the new legal requirements.
7. Use waiting periods to fit the business
The majority of employers have used waiting periods aligned with payroll so employees join on the first day of the pay reference period. This avoids having to calculate, explain and manage part payments. But it is also possible to build in a waiting period to avoid one off events such as bonus payments or seasonal increases, or to allow time to organise contract joining before the auto-enrolment duty kicks-in. But remember, while employers can delay assessment and auto-enrolment, they can’t delay having a qualifying scheme in place and the statutory communications to their employees.
8. Communicate with employees early
Engaging with employees and clearly communicating the changes in advance of auto-enrolment will make sure that when it happens, employees understand why money is being deducted from their pay. This will also ensure they appreciate the value the employer contribution is adding, while reducing employee questions. Consultancy around employee engagement and communication is an area where external advisers can add real value.
9. Review default investment funds for existing schemes
Employers have a regulatory responsibility to make sure the auto-enrolment default investment option is suitable for those employees that will be enrolled to the scheme. Existing investment solutions may not be appropriate. Advice is crucial to getting this right. Employers also have a responsibility to have an on-going investment governance framework in place, which is something advisers can support.
10. Remember to register with the Pensions Regulator
Employers must register their scheme with the Pensions Regulator within four months of the staging date. Details must be given of their qualifying workplace pension scheme and how they have gone about enrolling employees to the scheme.
Petaurum Solutions’ Comment
Another great article that again highlights the need for careful planning and the consideration of the wider impact Auto Enrolment may have in a SME sized business, who do not have the resources or internal specialists that a larger business will have. This makes the provision of a cost effective, long-term implementation solution even more critical to ensure the SME does not become swamped with the processing requirements and responsibilities that Auto Enrolment will bring. Therefore any solution should be looking at not only the pension scheme, but also how it will be administered, how you will be communicating, what processing impacts it will have on your organisation and what HR and Legal changes may you need to make. Petaurum Solutions has a complete SME specific, competitively priced end-to-end solution that will take care of your Pension, HR, Legal, Communications and Processing requirements, leaving you free to manage your business safe in the knowledge that your Auto Enrolment implementation is in professional hands. Contact us and start your Auto Enrolment journey today
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