With around 32,000 businesses across the UK having staging dates for automatic enrolment in the 2014/15 financial year alone, demand for advice and support in achieving compliance is increasing.
Automatic enrolment was pushed to the forefront of the news agenda earlier this year when The Pensions Regulator (TPR) found Dunelm had underpaid initial auto-enrolment contributions by £143,000.This undoubtedly raises grave concerns for other companies, as those who wrongly assume their payroll is meeting the required standards could find themselves in a similar situation.
Understandably, the biggest change in pensions for decades has caused problems for a large number of companies in the UK, specifically SMEs, and has led to some catching the attention of TPR.
SMEs may find pension providers will be less inclined to work with them, as with compulsory auto enrolment there is now reduced funding in their pension pots.
So what are the key problems both companies and accountancy professionals face - and most importantly, what action needs to be taken to overcome these difficulties?
Fully prepare or face the consequences
TPR is urging businesses to start preparing for automatic enrolment 12 months prior to their staging date. However, a recent survey of accountancy professionals by IRIS, found many businesses are leaving preparation to the last minute, with 59 per cent of participants saying their clients had not even enquired about automatic enrolment yet. Even worse, the National Employment Statistics Trust (NEST) has noticed a worrying trend of businesses entering a black hole by failing to meet compulsory staging dates, putting them at risk of incurring large fines.
The lack of preparation leaves companies vulnerable to making mistakes, misjudging the amount of time it will take them to meet their staging dates or over estimating the support their pension provider can offer.
The forefront of a company’s preparation for auto enrolment needs be education - ensuring key personnel are up to speed as quickly as possible and plugging any skills gap.
Education, education, education
Emsworth based Independent Financial Solutions (IFS) has been offering financial advice to businesses and businesses owners, as well as individuals for 25 years. Joe Freire from IFS sees education as being one of the first ways to address AE issues. “We find people are greatly underestimating the size and complexity of automatic enrolment. It can be a very daunting task, especially with smaller organisations. There is a clear knowledge and skills gap, and the later businesses leave preparing, the bigger this gap becomes.”
The experience of IFS is supported by the accountancy and payroll bureaus surveyed by IRIS. Just two per cent said they felt fully confident answering their clients’ questions about automatic enrolment.
“Many accountancy firms may have issues answering clients’ questions, but we took a proactive approach to educating ourselves to ensure we wouldn’t have this problem,” Joe says. “We took the initiative and attended a number of different training seminars, as well as reading information we collated from a number of different sources to make sure we were up to speed.”
Overcoming the integration hurdle
Education is not the biggest hurdle to overcome in the preparation for automatic enrolment according to Joe however.
“One of the biggest and most difficult tasks is the integration of systems and data. Due to the complexity of some of the tasks required for assessment, integration between payroll and pensions is hugely important.”
IRIS has been working closely with NEST to ensure its systems integrate with each other, making the transfer of data as seamless as possible.
Joe continues: “We have recently recommended NEST to a couple of clients who already use IRIS payroll software, as the data output taken from payroll can be easily transferred into NEST. Certain other payroll providers are quoting up to 25 week turnarounds for creating custom reports and this simply does not fit into the timeframe of many of our clients.”
“Our primary advice for clients who are just starting their automatic enrolment journey is to ensure they are working with the right provider for them. There are a range of different systems and process involved in automatic enrolment including payroll, assessment, communications and more.”
“By educating yourself on the legislation and processes and ensuring you are working with the right providers, you can make the transition to automatic enrolment compliance as stress free as possible.”
One size fits all results in failure
However, despite the requirement for auto enrolment, experts like IRIS know a one sized fits all approach doesn’t work. Every company is different and tailored software is important. More problems can be created if a single minded approach is adopted adding to the pressures on companies.
This can be clearly seen at international clothing and accessories retailer UNIQLO. The company, like many retailers, sees its workforce expand dramatically over the Christmas shopping period which required them to create a tailored approach to auto enrolment.
Michael Wallbridge, Payroll Manager at UNIQLO, explains: “We usually have 550 employees, but this increases to around 800 at Christmas. Administration becomes increasingly difficult to stay on top of over these months.”
Michael operates the entire payroll for the company and therefore heavily relies on effective tailored software to ensure payroll runs effectively. Knowing the company’s staging date was November 2013 he started talking to IRIS a year before.
“With the amount of admin involved in staying on top of pensions and auto enrolment, good software was vital as without it I would have struggled to get all of the admin done – especially around the Christmas period.”
Whilst looking at the implementation of auto enrolment within the business, UNIQLO was also mindful it has a young workforce and how this would impact the decision by staff to join the scheme.
Michael comments: “Most of our employees are in their 20’s, therefore pensions are not at the forefront of their minds. The drop out rate is currently low, most likely due to the one per cent pension contribution. As this increases to five per cent with auto enrolment, I foresee a potential increase in the opt out rate. This will then cause an increase in administration and we will use the IRIS AE Suite to simplify this process as much as possible. We will also continue to focus on encouraging our employees to consider the future benefits of being in a pension and making the scheme as attractive as possible to encourage people to stay opted in.”
Implementing any new process within a business can be stressful and complicated, as Mark Paraskeva, CEO of IRIS SME Payroll Division explains, “We understand changes in business administration and process can sometimes be demanding but in our experience the earlier companies prepare, the smoother the journey will be. Recent statistics from the CEBR suggest that automatic enrolment procedures can take up to 103 man days for the set-up and 3.5 days a month recurring, while using automated automatic enrolment payroll solutions can help reduce this one-off time by up to 56.5 man days and remove any recurring time.
“Understanding the legislation, finding a suitable pension provider and ensuring companies are able to comply with key tasks such as assessing employees and communicating through the different stages of the automatic enrolment process, all takes time and careful preparation.
“By seeking advice, support and allowing plenty of time for preparation, SMEs can help to alleviate the auto enrolment struggle. This will help them to stay ahead of the game and out of the headlines.”