Auto Enrolment – The facts
In 2012 the Government reformed workplace pension legislations and part of this reform was an obligation by employers to enrol all qualifying employees into a pension scheme. This includes employees aged between 22 and 65 who are earning over £10,000 per year. Auto Enrolment applies to virtually all employers; even those with only one employee and employers must contribute to these pension schemes. The Pensions Regulator can issue fines to businesses who do not adhere to the legislation or who miss their staging date. All employees must be enrolled, but they do have the option of opting out of the scheme.
Why has the government introduced Auto Enrolment?
- Put quite simply people are living longer!
- Higher percentage of the population is retiring
- Government uses tax relief on pension contributions to encourage people to invest in their future
- Reduces the reliance on state pension in retirement
Here are our best tips to get you off to a flying start on your AE journey:
- Plan ahead and prepare
It may seem like the oldest trick in the book, but there’s a reason for that! Making sure you implement a suitable plan is crucial to the success of your Auto Enrolment scheme.
Your pension provider will, of course, provide a vast amount of support, but you need to make sure you manage things your end too. For example: keeping your payroll data in order, setting up your payroll to match the data formats of your payroll provider and ensuring you process it correctly.
Of upmost importance is ensuring you leave enough time to get everything in order. The Pensions Regulator recommends employers begin their planning at least 12 months in advance of their staging date.
- Think carefully about scheme selection
Don’t rush the decision to choose your provider. It is most probably the biggest and most important decision you will have to make.
Here are a few things to consider:
- Will the provider send out employee communication on your behalf? If they don’t, the responsibility is on you.
- To what extent will your provider support you through auto enrolment with regard to implementation and ongoing administration?
- How much will it cost? The cheaper the cost, the more you’ll probably be expected to do. As in most cases, you get what you pay for.
If a scheme is good quality, it should be able to demonstrate this through a third party e.g. The Pension Regulator’s master trust assurance framework or Pension Quality Mark. It is generally recommended to choose a pension provider based on a recommendation, through an FCA regulated Independent Financial Adviser, or through a website such as unbiased.co.uk.
- Think about your contribution structure
Most Auto Enrolment minimum contributions will not be enough for a comfortable retirement for most people. Nearly one in three small and medium sized businesses have therefore planned to contribute more than the minimum.
These businesses believe doing so will help recruit new employees and help with retention of employees. Seeing as generous pension contributions are the most highly rated benefit cited by employees, this certainly seems like a sensible approach.
Contributions can be a tricky subject: have a look at the Pensions Regulator website for further detail.
- Harness the power of payroll
You need to make sure your payroll system has an integrated exchange of data with your pension system in order for your AE to run smoothly.
Payroll software is purchased at extra cost to your business. Recently, payroll providers have been telling companies they do not need to use an IFA as the payroll software can do it all. This usually leads to them choosing NEST software, at huge extra cost.
If you choose a fully supported pension provider then this additional purchase shouldn’t be necessary. Most pension providers recommended by us would offer full support for your payroll software.
- Include auto enrolment in your budget forecasting
Auto Enrolment is unavoidable. Since the legislation was brought into play in 2012, The Pensions Regulator has given out a large number of fines to those businesses who have not complied with the new rules. Make sure you are not one of them & make sure you forecast a budget plan to absorb the costs of putting your AE scheme in place. Costs to bear in mind are: implementation, payroll, sending out communications, internal resources, and other administrative costs. These will all vary depending on your business’ decisions on suppliers, providers etc.
You might also want to seek external advice – e.g. from an IFA – and so you should make sure to budget for this accordingly too.
Conversely, contribution rates are initially set quite low & are fixed from the beginning. However the rules do state that by 2019, employers must pay a minimum of 3% of qualifying earnings per employee into a pension scheme.
Do not underestimate the value of clear communication with your employees. This is one of the most important things we have found with the implementation of new AE schemes. It is wonderful to see how truly grateful employees are when they finally have the mystery of pensions explained to them!
There is a huge amount to consider with Auto Enrolment, from choosing your scheme, deciding on your contribution structure, considering administrative costs & ensuring your payroll software is up to speed. IEP Financial Ltd are experts in workplace pension schemes & have a team of specialists to cover this area of expertise. We have successfully guided many small, medium and large businesses through their staging date.
If you feel your business could benefit from an IFA’s assistance or advice, then please give our Hove office a call on 01273 208813 or email firstname.lastname@example.org
IEP Financial is authorised and regulated by The Financial Conduct Authority (FCA)