Auto enrolment: The lessons
Based on original expectations, automatic enrolment into workplace pensions has clearly been a success – so far. But there is much more to be done to address the potential crisis in pension provision which could be looming for future generations. What lessons are there for employers who haven’t yet staged or who may be staging in the next two years?
What have been the successes?
The Pensions Regulator suggests that since the start of auto enrolment in 2012, more than six and a half million people have been enrolled into a pension scheme. It estimates that more than 200,000 companies have enrolled employees, and more than 66% of employees are now active pension scheme members.
The number of employees who have opted out is less than 10% of the eligible population, compared with initial expectations of more than 28% (now downgraded by the DWP to no more than 18% opting out). Similar schemes in the USA and New Zealand have experienced opt outs of 15% and 21% respectively.
What hasn’t gone so well?
Auto enrolment has been firmly established in the UK, but it hasn’t all been plain sailing. The Pensions Regulator has issued 4,800 compliance notices to employers who have not set up pension schemes and a relatively small number of fixed financial penalties for ongoing pension failures. Research suggests most large and medium sized employers have complied with the regulations and most employees within them have remained in the pension scheme and are actively contributing towards their future pensions.
How can smaller employers ease the process?
Here are four tips for smaller businesses that will be staging in the next 12-18 months, as well as for large and medium sized employers re-enroling employees who opted out three years ago:
- Plan your auto enrolment project early
The best prepared employers all:
• Checked their staging date through The Pensions Regulator website. The most successful knew their staging date 18 months to two years beforehand, allowing them to consider any implications and plan for any potential issues.
• Chose their pension scheme at least 12 months in advance of staging, allowing them to access the best scheme for their business, which could be assimilated into any offers and benefits for new starters, helping to attract new talent. Employers who waited longest tended to have less choice of pension provider and could only set up a pension with those who would take them, rather than the scheme they wanted.
• Assessed which workers needed to be enrolled and calculated the potential extra costs of auto enrolment over the longer term. Most employers who had the time to do so assimilated extra pension contributions into pay reviews and absorbed some of the costs. Those who left it late faced additional unexpected costs.
• Considered ways to mitigate the extra costs by using salary sacrifice. In our experience, employers underestimate the complexity and potential effects of salary sacrifice on employees. We have helped a number of employers to navigate salary sacrifice schemes and all our projects have been approved by HMRC.
- Make sure your systems can cope
Auto enrolment isn’t easy, especially for in-house payroll professionals who now need to add pension provisions to their “regular” pay and benefits updates.
Operation of the payroll is the key element to help manage auto enrolment, so employers need either a robust payroll system to cope with the increased responsibilities, or a reputable payroll bureau to outsource the function to. Our experience is that many employers consider the onset of auto enrolment as too onerous and outsource to specialists because of the extra responsibilities and financial penalties. Our own auto enrolment service has been developed to help employers comply with setting up their scheme and throughout the life of the pension scheme.
Employers must also ensure that all other systems are set up to cope with joiners, leavers, contribution rates, and salary sacrifice requirements.
- Get help!
It would be very easy for employers to do things themselves and ‘muddle on’ with no help. But many require support in considering a scheme, setting it up, considering the cost implications, and with its ongoing maintenance and operation. Most employers who have successfully implemented auto enrolment have accessed some help, through their IFA, accountant, legal advisers or payroll bureau. Because auto enrolment has been in operation for more than four years, most advisers have experience in helping other employers through the process.
- Think about the future
As businesses evolve, so does an employer’s benefits package. Most employers review their pension provision every two to three years to ensure it remains competitive and achieves its objectives.
Some employers use the pension scheme as part of their overall benefits package to attract and retain key employees; others increase pension contributions beyond auto enrolment requirements to boost pension savings and lock in employees with a generous benefits package.
At the very least, smaller employers should consider the potential extra costs of contributions following the proposed increases in April 2018 and 2019, and beyond.
Employment Taxes Partner – UNW LLP
UNW’s specialist Employment Taxes and Payroll team is market leading in its breadth of knowledge and experience as well as its range of services. Our team, led by the only Employment Taxes partner in the region, is known for its proactive and practical advice.
If you would like any advice on auto enrolment compliance please contact firstname.lastname@example.org or call 0191 243 6000.
Photo: Front, l-r: Rajan and Anjali Malhotra, Marjorie Ridgway / Back, l-r: Alan Suggett, Karen Simms, Amanda Maskery, Paul Graham
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