Against a backdrop of extreme pressure on existing pension schemes there is also a huge gap in employees’ expectations of what kind of lifestyle they want in retirement vs. the reality of their savings and the support provided from their state pension. The average salary in the UK is £26,500 and the state pension is £5,588, which can mean quite a pay cut on retirement, unless individuals build their own pension pot!
Automatic enrolment or ‘auto enrolment’ as it’s more widely known has finally arrived. The goal is simple, to get more people saving for their retirement, with the help of their employer.
Starting from October this year, and being phased in over the coming years, the legislation requires all UK employers to automatically enrol their eligible employees into a suitable pension scheme, and more significantly to contribute towards the employee’s pension savings. Other duties and requirements, such as record keeping, are also expected of the employer, and there will be significant financial penalties for companies who fail in their duties.
But where do you start? What pension provider should you chose? And what about NEST: is that the answer?
Whilst your ambitions in this area are positive, you may feel perplexed by the changes and the choices you could and should make. So how can you make a sensible decision?
#1: Establishing your auto-enrolment date
Each company is allocated a ‘staging date’. This is the date by which you must be fully compliant with the new regulations. The staging dates have been staggered over a number of years, starting with the largest employers. To find your current staging date (the dates have moved a number of times already) visit the Pension Regulator’s (TPR) website: http://www.thepensionsregulator.gov.uk/pensions-reform/staging-date-timeline.aspx
#2: Getting to grips with the impact on your business
Even if you want to provide something in excess of the legal minimum, it makes sense to assess what the likely financial and administrative impacts of complying with the basics of Auto-Enrolment will be.
The administration task is not insignificant and it will be continuous, it won’t be a case of simply setting up a scheme and letting it run. You will need to regularly asses your workforce and manage the process of enrolling eligible staff onto the scheme, and ineligible staff off, and clear records will need to be kept and maintained for many years. To understand more about your new duties, check out TPR again at http://www.thepensionsregulator.gov.uk/docs/workplace-pensions-law-is-changing.pdf
#3: Being clear on what you want for your company as well as your people
Make no mistake; you will be forced to provide a pension scheme for your eligible employees. So you can decide that you’re either going to do the bare minimum or to make your new pension scheme a real focal point to engage, value and retain your people.
This will in part be driven by the nature of your business. So if you have a young, possibly transient workforce, investing significant time, effort and resource into the scheme may be fruitless. But if your workforce is higher paid and more likely to stay with you, Auto enrolment is a great opportunity to connect with them and get them to engage and take more responsibility for their financial future, where they truly understand the need to commit more than the bare minimum into the scheme.
#4: Selecting a pension scheme
Once you’ve decided what you want out of a pension scheme and have a better understanding of the impact of auto-enrolment, you’re still left with the decision of selecting a provider and actually implementing all of this.
Some employers feel confident enough to do this themselves and chart their way through the developing landscape alone. Many, on the other hand, will seek advice and support from an expert, such as an employee benefits consultant. It’s worth noting that even if you have a legacy scheme in place, perhaps one you have inherited, this will need to be reviewed as many existing schemes will not meet the minimum criteria of the new legislation. Better terms may also now be available.
A consultancy firm can help you with all of this, even if all you are looking for is something simple and straight forward. In which case a provider such as the likes of NEST or the People’s Pension may be the most appropriate answer for you; but if you want something with greater choice and flexibility you will need to look to the wider market to find the right solution for your needs.
Which really takes us back to the beginning, and those thoughts about that new pension scheme.
In so few words there’s only so much we can cover. But the key message is start planning. There’s a lot to do and the process of auto enrolment has only just begun. So why not speak to a professional and get the right advice; that way at least you’ll be in a better position to do things that make sense for you company, rather than being forced into making a last-minute decision.
And a final plea, if you are taking the trouble to put in place a pension scheme, especially one that exceeds the minimum requirements, work with an adviser and provider that will support you in engaging your workforce and explaining the value of the great benefit you are providing. It is likely to be the cornerstone of your staff’s future financial plans.