Are you prepared for Pension auto-enrolment?

get organisedThere cannot be many employers now who are not aware of the government’s legislation to ensure that all employees are enrolled in some form of workplace pension scheme and for most SMEs the deadline for action is approaching fast.
The new system – called automatic enrolment – started at the beginning of October 2012 with staff who work for the biggest businesses, with others being signed up over the following six years. It is expected that all employers will have joined the scheme by 2018.
Under the new system, those who work in the UK, are aged over 22 and under the state pension age, are not already in a scheme, and earn more than £8,105 a year must be automatically be enrolled. Those employees who already save in a workplace pension scheme or are self-employed will not be signed up.

Who has to comply?

Even if you only employ one person you are an employer and you have certain legal duties.  There is a guide for employers here   The process is now at the point of targeting micro businesses and SMEs with fewer than 50 employees. The Pensions Regulator issues letters telling employers their Staging Date, which is the date by which they must have a pension scheme and administration system operating. You can check your own here
Failure to register incurs hefty fines starting with a fixed penalty of £400. In some circumstances employers can be issued escalating penalty notices at a prescribed daily rate of £50 up to £10,000 depending on the number of staff employed by the business.

What’s involved and how long does it take to set up?

The advice is to allow at least six months before the staging date to make sure all the components are in place.
The employer needs to identify a suitable pension provider willing to provide a scheme.  Some smaller employers have found that providers are only interested in working with those that have a significant number of employees, although the Government has set up a basic scheme called NEST.
If an employer manages their own payroll and uses payroll software they also need to check whether it is able to accommodate pension scheme management or whether they need to buy additional components.
Accountants who have been preparing for helping clients with or managing their auto-enrolment schemes as part of payroll management services have identified some issues that can cause problems.
The first is cost. Buying an add-on package to existing software can cost about £350 and you need to check whether it is compatible with the Government’s online auto-enrolment software.
The second problem is again software-related in that employers will also need to purchase pension providers’ software and in some cases may find that it is unable to “talk” to the Government software. This too may need to be resolved.
Thirdly, there is the complexity of setting everything up. Here, it is wise for a business to check that their accountant managing their payroll, if they have one, has the capacity and is willing to carry out auto-enrolment.
Finally, once a scheme is in place and operating it needs to be administered.  It works on the employer providing Real Time information so employers will need to factor in the cost and time for this.
It may be more cost effective to outsource the whole process to your accountants or a payroll management service, many had been preparing for auto-enrolment for some years and will have dealt with the software incompatibilities and tested them. Alternatively speak to a pensions adviser but they can be expensive and do look for other options like those offered by membership organisations eg the fixed price package offered by the Federation of Small Businesses.
Whichever solution you adopt the time spent on early research will save costs and may avoid fines down the line.

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