Auto-enrolment So Far
Believe it or not Auto enrolment had its 3rd birthday in October 2015, and 2016 sees UK small and micro employers having to take action as they near their staging date. It is crunch time for small and micro employers in 2016-17 when thousands, in fact tens of thousands, of SME’s must now provide a pension scheme for their employees.
Often referred to as, work place pensions, Auto enrolment has been a success so far with larger employers having already staged as at October 2012. The respective schemes encourage more people to begin saving early, building a pension pot that will eventually supplement their state pension.
Auto enrolment is not a new concept, the UK is not the first country to implement this type of pension savings rules; many other countries have implemented similar legislation, some of which are of mandatory participation.
The latest advertising, featuring a large cuddly multi-coloured monster called “Workie” that looks like it’s come from a Monsters Inc. film, is designed to raise awareness to the public about the changes. This appears to be good for individuals, however, research shows that employers are still in the dark about Auto enrolment.
There is low awareness of Auto-enrolment among small and micro enterprises, with research from The Pensions Regulator showing significant numbers of these enterprises do not know their staging date. This has prompted The Regulator to write to more than 1.5m companies across the UK from the end of January as part of a campaign to ensure that by the summer all employers are aware of their staging date.
According to Jigsaw Research’s June 2015 technical report (produced on behalf of The Pensions Regulator) regarding auto-enrolment, 16% of small and micro enterprises surveyed with staging dates between January 2016 and November 2016 were not aware that employers would have to provide a pension scheme for auto-enrolment. This is often an area in which smaller enterprises need support (small and micro enterprises being defined as enterprises with between 5-49 employees and 1-4 employees respectively).
- Know your staging date: Employers will receive a letter confirming your staging date. Alternatively this can be checked here.
- Provide a point of contact: Employers will need to confirm both a primary and secondary contact; this is usually the most senior person in the business and the person who will manage the process of auto-enrolment on their behalf.
- Check who you need to enrol: Workers below state pension age and over the age of 22 who currently earn £10,000 or more will need to be enrolled.
- Work out your contributions and budget accordingly: Employers will need to meet the minimum contribution levels under Auto-enrolment rules while budgeting for potential one-off costs such as any advice received or any new software required to implement the scheme.
- Check your records and payroll: Of course, you will need to ensure that you have sufficient processes in place to allow for easy transfer of data between your pension provider and your payroll system.
- Select a pension scheme, or check your existing one: Employers may already have an existing pension scheme which meets auto-enrolment requirements, however, if the scheme falls short of these requirements employers will have to implement a new scheme which matches the criteria for auto-enrolment.
At Your Staging Date & Beyond
- Assess and enrol your staff: As part of the Automatic-enrolment process employers will need to assess their staff. Once assessed staff will be automatically enrolled into the scheme as soon as the employer’s pension provider has the information they require.
- Communicate the change with your staff: Employers are obligated to communicate to each staff member after the staging date. They must inform them of how auto-enrolment applies to them and their rights in relation to the scheme.
- Your ongoing AE duties, keep a record and monitor the statuses of your staff: Employers must keep a record of compliance and monitor the ages and earnings of staff to ensure that anyone who wasn’t eligible who is now eligible is enrolled accordingly.
- Submit your declaration of compliance: Finally, you will need to submit a declaration of compliance (via the government gateway) to show how you have met your requirements and legal duties under Auto-enrolment. Failure to submit your declaration in time will mean that you have not complied with your legal duties and may receive a fine from the regulator.
Insurers and providers are also looking at the provision of Auto enrolment to small and micro employers and many have minimum scheme numbers with others implementing administration and setup charges in order to make it cost effective for themselves.
It’s important for employers to check the small print, as schemes implementing with an admin cost could see employers paying more for administration than the actual cost of pension contributions. Advice costs are not supported by Auto enrolment pensions, so you can expect to be charged directly by your adviser. At a time when employers face an additional cost it’s important to check you have a robust and efficient scheme that will minimise the disruption to your business.