This is a huge increase in numbers compared with the first 14 months of inception, when around 3,000 of the UK’s largest employers reached their staging date.
A survey of IFAs carried out by financial research organisation Defaqto, on behalf of Now: Pensions, at the start of this year hinted at the problems that could lie ahead.
It found that 55 per cent of the 264 consultants and advisers surveyed had concerns about their ability to service organisations that were due to stage between April and June 2014. In fact 17 per cent said they had no intentions of advising on auto-enrolment, of which 27 per cent considered the administrative burden too onerous.
However, the volume of employers hitting their staging date at the same time is only part of the issue. The fact that many are thought to have left their auto-enrolment planning till late will only serve to compound the problem.
Many also lack the knowledge they need to make informed decisions about choosing the best auto enrolment solution for their employees, according to 89 per cent of the IFAs surveyed by Defaqto.
It is with this in mind that Financial Advisers have got a very strong role to play. Becoming ‘workplace pension friendly’ is not really about the selection of the end pension scheme. It’s all about the compliance and fulfilling your duties.
Employers want to comply with the regulations and make the installation and communication processes as simple as possible.
The choice of the end scheme is secondary, it’s important but it’s secondary. For an employer, this is about compliance.
Therefore what are the things that an employer needs to bear in mind.
Up until February 2018, employers will need to automatically enroll all of their “jobholders” in a workplace pension scheme. Minimum employer contribution levels will also apply. Jobholders may choose to opt out of the scheme, though.
1. Employers should identify the date when they must start auto-enrolment. The largest employers started from 1 October 2012, with smaller and new businesses phased in over the next four years.
2. Employers should check in advance whether their existing pension scheme meets the minimum requirements for auto-enrolment. This includes minimum contribution levels (for defined contribution schemes) or benefit levels (for defined benefit schemes). Also, the jobholder must not be required to provide any information or to express a choice (for example, about the investment of contributions) in order to become an active member.
3. Employers should identify their jobholders and establish which of them are not already enrolled in a compliant scheme. Jobholders include employees, temporary workers, directors employed under a service contract and agency workers (who are considered to be employed by whoever is responsible for paying them). They must have a minimum level of earnings (set at the income tax threshold) to qualify. Jobholders aged between 22 and state pension age who are not already members of a compliant scheme will need to be automatically enrolled in one.
4. If any jobholders are not already enrolled in a compliant scheme, employers should consider what scheme to use to meet the auto-enrolment requirements.
5. Employers will need to check that they are satisfying the requirements in respect of minimum contribution levels for their employees. For auto-enrolment purposes, contributions are based on a definition of earnings which includes salary, wages, commission, bonuses and overtime. Contributions are only paid in respect of earnings in a defined band (currently £5,668 to £41,475). Contributions to an existing scheme may be based on a different definition of earnings, so company payroll systems may need to be updated.
6. There will be an optional waiting period of up to three months before an employee needs to be automatically enrolled into a workplace pension. Workers can, however, opt in during the waiting period.
7. Employers should also put processes in place to identify auto-enrolment triggers for existing employees and new joiners (eg when they turn 22 or reach the minimum level of earnings).
8. Individuals can opt out of scheme membership, within one month of becoming a scheme member or receiving enrolment information. If they do so, all contributions must be refunded. Someone who has opted out can apply to re-enroll, but only once in a 12-month period. Automatic re-enrolment will apply every three years, although employers will have some flexibility about when re-enrolment should take place.
9. Employers will need to communicate with staff about auto-enrolment and explain that they have the right to opt out if they wish. Employers must also report to the Pensions Regulator to confirm that they have complied with their auto-enrolment obligations.
Employers cannot encourage jobholders to opt out of auto-enrolment nor can they encourage candidates to do so during the recruitment process – penalties will apply. Employers should bear this in mind when communicating with their workforce about the new requirements.
Don’t stick your head in the sand hoping that this is going to go away because it is here to stay. Help is available with many advisers, providers and payroll companies offering guidance through the workplace pension maze so don’t be afraid of picking the phone up and asking for help.
