SMEs urged to plan ahead for Auto Enrolment
By 2018, every Employer by law will have to offer a workplace pension that automatically enrols employees from their staging date (the deadline imposed on Employers by the Pensions Regulator). Failure to comply with this ground breaking pensions legislation can lead to financial penalties from the Pensions Regulator ranging from £50 to £10,000 per day!
Employers are currently being phased into Auto Enrolment (AE) with the largest Employers with 250 or more employees already in. The Pensions Regulator will write to Employers 12 months ahead of their staging date to make they are aware of their AE obligations and timescales, but is this enough time?
The main risk for Employers with less than 50 employees is the sheer volume of businesses going through the AE process at the same time. In 2015/2016 nearly 153,000 Employers will be auto enrolling into a workplace pension scheme and this figure quadruples in 2016/2017 to 617,000. So the big question is, can the pensions industry cope with this level of demand?
The AE process is not as straightforward as selecting a pension provider and asking employees to join. On the contrary, the legislation states that the Employer has to automatically enrol eligible employees into the Scheme from day one and should they opt out, then every 3 years they need to be opted back in again. Eligible employees are those aged between 22 years and State Pension Age and in receipt of pensionable earnings (criteria provided) over £10,000 per annum. The Employer then needs to pay minimum contributions for each employee starting at 1% in year one and rising to 3% in year 3.
The first step any Employer should take is to establish their staging date by visiting the Pension Regulators website. Following this the Employer needs to assess eligibility for the current workforce and then review the payroll and HR software to see if it can cope with the demands of AE. Most software providers have AE packages available and this should be discussed at a very early stage.
Employers then need to find a suitable pension scheme, which usually starts by reviewing any existing arrangements and establishing their flexibility. Alternative AE compliant schemes are available from most of the large Insurers, including a Government initiative called the National Employment Savings Trust (NEST). However, Insurers appetite for small pension arrangements has yet to be tested and no-one knows how will they cope with over a half a million requests in 2016/2017?
Finally, Employers will need to allow time to test their software and new pension scheme ahead of their staging date, to ensure they are ready to meet the ever changing demands of AE from their staging date. The Pensions Regulator requires self certification from an Employer following their staging date and insists on statistical reports at agreed intervals. It is therefore imperative that Employers keep complete and accurate records for the scheme especially opt outs, so that the information can be extracted and reported to the Pensions Regulator, when required.
With a lot to consider and a huge risk on Employers for failure to comply, Clumber Consultancy is urging Directors to start thinking about AE now. Having a robust project plan in place, along with cost estimates and rigid timescales, Employers will have a more realistic chance of beating the AE frenzy and ensuring they are AE compliant.
To beat the mad rush and to discuss risk reduction opportunities, please get in touch with Clumber Consultancy today.