UK: Auto-Enrolment - How Hard Can It Really Be?

Last Updated: 20 November 2014
Article by Ian Luck

Why have so many companies still not established a plan for how they will deal with the impact of auto-enrolment?

The legislation was enacted in 2008 and all the steps to ensure its successful roll out have been put in place, thousands of companies have already reached their staging date, established a qualifying workplace pension scheme and auto-enrolled their staff. All employers with as few as 50 staff will already have been issued with notices from TPR confirming when their staging dates are. There is no doubt that at some point in the near future you will be required to do the same.

Another IT project

Auto-enrolment realistically is not a pensions' issue. Of course the contributions will end up being paid into a pension scheme but the processes would hardly be different at all if the receiving vehicle were the member's salary, an ISA account, or something entirely new, introduced for the purpose. Pensions auto-enrolment is really another IT project and will make the recent Real Time Information requirements seem easy in comparison.

Have you budgeted for it?

Perhaps the belief is that the payroll systems will do all the work. However, we have yet to come across any payroll system that provides a complete solution, nor one that comes without additional cost.

The data output from some payroll systems may not be in the format required by the pension provider. You need to ensure that you have built enough time into your project plan to test this process. You would not expect to 'go live' with any other IT project without testing the data transfer. Last minute adjustments to processes or the need to include additional data-mapping programs will be costly.

If your payroll provider does undertake all the data processing that you need to carry out, will they also undertake the extensive communications exercise that is required? Even if they do, is that really their forte?

Manual intervention within the payroll process might be possible for smaller organisations but carries risks. There is nothing more emotive or crucial to the running of a business than to ensure the payroll function runs smoothly. If you do include manual intervention to cope with the auto-enrolment requirements, please make sure that it is only temporary.

Existing pension plans may not be right

The point is often made that as there is an existing pension plan, the company is well placed for auto-enrolment. Possibly, but do the contributions meet the minimum criteria? Does it have a default fund? Do the correct levels of governance exist? Are new joiners required to complete an application form? If the scheme has been up and running for a while will the provider support the plan for auto-enrolment purposes? We have come across a number of examples of policies that are not supported – forcing the employer to change the pension scheme, sometimes within a short timescale. In the post RDR world, help to ensure those changes happen smoothly will not be covered by commission payments. Have you allowed for that potential cost?

Make a choice

Employers may well face an inability to secure their preferred provider. With over a million new schemes required, the providers do not have to accept any schemes that they are not entirely happy with, whether that is because of low contribution levels, or lack of commitment being shown by the employer. Providers are now refusing to offer terms in every case. Yes there is always National Employment Savings Trust but that is 'Hobson's choice' and who can actually guarantee that NEST will be able to cope with the vast numbers of schemes that will be placed with it? That is not to say that NEST is a bad choice, but do make it a choice rather than just being swept with the flow.

Do you only pay your employees basic salary, or other payments, including commissions, bonuses, and overtime? If you are using 'qualifying earnings' as your basis for making contributions, you probably already know that these have to be taken into account. However, what about meal allowances, shift payments, or relocation settlements? Do you treat payments to someone who takes cash in lieu of a car the same as someone who is in receipt of company car? There is no definitive list yet and this is something that will probably be developed in the courts over time, but are you going to take the risk of falling foul of the regulations?

TPR has confirmed that between October 2012 and the end of January 2014, it had investigated some 134 breaches of duty. If the larger organisations, those that had the earliest staging dates, are finding it difficult to comply, then how are smaller employers going to cope?

However, all is not lost. We have an answer to the problem. It is effectively a packaged solution that we have negotiated with a leading pension provider. We have undertaken the due diligence and maintain close watch over them. All the employer has to do is follow a few simple steps to ensure they have in place a recognised qualifying workplace pension scheme into which they can auto-enrol their staff via the online portal. It deals with employee assessment, issues the right communication at the right time to the right people, and handles the opt-out process. It ensures that HR departments can concentrate on employment and not pensions and ultimately lets employers run their businesses.

We have taken great care to ensure the accuracy of this newsletter. However, the newsletter is written in general terms and you are strongly recommended to seek specific advice before taking any action based on the information it contains. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. © Smith & Williamson Holdings Limited 2014. code: 14/989 expiry: 28/02/15

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