By Grant Hughes, Head of SME, Barclays Corporate & Employer Solutions
It has now been two years since automatic enrolment started and the1st October marked the ‘staging date’ for businesses with 60 or fewer staff to enrol eligible employees in a pension scheme under the auto-enrolment legislation of 2012.
While the concept of auto enrolment may seem simple, the implementation is not – like all new legislation, the devil is in the detail. The associated time, money, planning, complexity and communication challenges associated with being compliant cannot be underestimated.
So we have pulled together our key learnings from helping thousands of businesses through the auto-enrolment process.
1. Know your staging date
Your staging date – the date by which you must comply with auto enrolment regulations – is based on your employee headcount as at 1 April 2012. You can confirm your staging date by entering your PAYE reference code at thepensionsregulator.gov.uk
2. Assess your workforce
It is important to know who is eligible for auto enrolment and who is not. An employee’s eligibility is based on their age and their income. Assessment tools are usually accessible through your payroll provider or pension scheme.
3. Review existing pension schemes and select your supplier
Many existing schemes may no longer be appropriate for a variety of reasons and are often refusing new members. You will need to check if any existing pension scheme you have in place qualifies as a workplace pension scheme under the new auto enrolment regulations. The right design, contribution and charging structures are essential to delivering a quality solution.
4. Default investment selection
All pension schemes for auto enrolment need to have a default investment solution. It is important to provide your employees with a suitable and tailored default option – especially as they may have little experience of investing.
5. Data migration testing
This is a long but essential step in the journey. Data migration testing ensures you take the time to understand the requirements of your payroll system, your pension provider and your in-house solutions. It is critical that the providers for each part of your auto enrolment solution integrate and work well together.
Effective and open communication throughout the implementation of your scheme is a must. Auto enrolment presents a great opportunity for you to think about how and what you want to communicate to your employees, not just in relation to statutory pension requirements but about employee benefits in general. Staff engagement has become increasingly important and a well thought-out employee benefit communication strategy can pay dividends.
7. Auto enrol eligible job holders
Once they have all been informed, the next step is to enrol all your eligible employees into the pension scheme and notify them of what is going to happen.
8. Register with The Pensions Regulator and keep records
You must register your auto enrolment solution at thepensionsregulator.co.uk where you can also run through their checklist to ensure your solution meets their standards. You are also required to keep records for all the payments you have put into your pension scheme for up to six years, as well as for all employees that have joined or opted out of your scheme. Records will likely be held by your payroll provider, pension provider or held internally within your company HR system.
9. Contribute to your workers’ pensions
The level of contributions required will be phased in over time, from an initial minimum of 1% of qualifying earnings from both employer and employee, rising to 3% employer and 5% employee contribution (including tax relief) from October 2018.
Employees may decide to opt out of your qualifying workplace arrangement – if so, you will need to have processes in place that deal with a refund of contributions in a timely fashion.
The three common pitfalls to avoid
1. It’s more complex than you think
Auto enrolment is more complicated and time-consuming than most businesses imagine. There are many routes to compliance but not all end in success. Having a plan for such a complex piece of legislation is essential. There are numerous areas of your business that should be involved including finance, HR, payroll and IT. It is important that everyone on your project team agrees on the key objectives from the outset (e.g. do you need to upgrade your payroll?).
2. It is more costly than you think
It is important to be aware of the additional costs associated with auto enrolment that you may not have considered. This may include system upgrades, communications and the cost of people’s time to successfully implement a new scheme. While many employers account for the impact of contributions, they sometimes do not consider these other ‘hidden’ costs.
3. What is already in place may not work
A lot of businesses think it’s ‘job done’ if they have an existing pension scheme in place. Many have up to 30% of their employees in a pension scheme and assume they can simply place the rest into the same arrangement. However, a number of pension providers will not accept these additional members into their scheme for various reasons, such as lower expected contribution rates per member. Do not assume that your existing provider will happily take those extra employees. You may need to consider going elsewhere.