Auto enrolment was first made law in 2008, came into effect in 2012, and now the final date for all UK employees to be enrolled in workplace pension schemes is fast approaching.
Small businesses need to implement auto enrolment by 2018 and given what the process entails, this may seem like an impossible task. But ultimately it will benefit all workers, ensuring that everyone has the opportunity to save for retirement.
However, small and medium-sized enterprises (SMEs) face many potential pitfalls when implementing auto enrolment. So what should you keep in mind when preparing to tackle this mammoth task?
Why auto enrolment is challenging
Setting a business up for auto enrolment is always frustrating, but it's a challenge of several degrees. To a large business with a substantial bank balance, it's a minor inconvenience; to an SME with limited resources, it can seem like an insurmountable obstacle. It is not a quick or cheap process. In fact, it can take up to eight months to get a business ready and can cost an SME (with one to four employees) up to in £11,300 in man-hours.
For example, as each of your employees will have their own set of circumstances – period of employment, age and salary – they’ll each need to be individually assessed prior to enrolment.
But time is not the only factor you have to consider. Auto enrolment compliance in itself is also complex. The processes and requirements are explained in a detailed government document, but at over 670 pages it is probably not something you will have time to read in its entirety. And even if you do make time to read it from cover to cover, fully understanding each section will be another challenge.
However, understanding what is expected of you is of crucial importance, as the consequences for noncompliance are severe.
Businesses that fail to implement auto enrolment will be charged an initial penalty of £400 and if, four months later, you are still found to be noncompliant you may be charged a daily fine of between £50 and £10,000. This will continue until such time that a scheme has been implemented to the correct specifications.
Add to this the fact that only about 15% of independent financial advisers are speaking to their clients about the impact of auto enrolment and that many large pension providers are ill-equipped to partner with SMEs, it is easy to understand why you might feel discouraged.
So what can you do to make setting your SME up for auto enrolment easier?
Options for SMEs
SMEs can definitely manage their own auto enrolment. It may not be a quick process, but it is certainly doable. But before you decide to do this, ask yourself whether you can spare the time to read the guidance documents, if your staff have the time available to spend on the project planning that will be required and whether you’re confident you can deliver a compliant workplace pension scheme on deadline.
If you are unsure about any of these aspects, or simply feel like your time will be better spent on the operational side of running your business, you might want to consider outsourcing your auto enrolment.
A third party accounting provider can get your business auto enrolment compliant in time for the 2018 deadline.
They can conduct the time consuming employee assessments on your behalf and make sure your pension scheme is properly aligned with your existing payroll system. A third party accounting firm can also do data testing and compliance tests to ensure no aspect of the process or opportunity for improvement is overlooked. They can even train your employees to eventually run the system themselves.
No one can argue that auto enrolment is complex or that the process to set a business up to be compliant is time consuming. But since it will ultimately benefit everyone, SMEs need to ensure they have the correct processes in place to support the system. Compliance is completely achievable and the support SMEs need to get there is available – small businesses don’t have to handle it all by themselves.
By Bill Monty, Independent Financial Advisor - Specialising in Auto Enrolment, Sable