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Kirk Rice Blog

Key Questions for Businesses to Answer Regarding Auto Enrolment (Including Podcast)Written on January 2, 2016 by Michael Powell

Key Questions for Businesses to Answer Regarding Auto Enrolment (Including Podcast)

Listen to the Kirk Rice Auto Enrolment podcast:


 

Auto Enrolment is a topic that’s on the lips of many business owners and managers at the moment and the most common questions are around areas such as:

  • Does it apply to me as we don’t really want to do it?’
  • When should we start planning?
  • Can we just use qualifying earnings basis like everyone else?
  • Can I consolidate all my previous pension plans in the new employer scheme?
  • What’s the cheapest scheme to use?

In addition, companies are concerned that implementation may be a lot of work.  They’re worried that they don’t have time to stop their daily activities to organise what’s required and inform staff appropriately. So, they need to identify what they can do and they’re looking for clarity and guidance.

Let’s look at each of these topics in turn:

Does it apply to me?

Records show that over 90,000 employers have gone through this process and are providing workers with a pension scheme that meets the new minimum quality standards.  There are another half a million or so employers about to go through the same process in 2016.  And the lesson we’ve learned with the employers so far is that you mustn’t underestimate the work that’s involved and the implications for your business.  And this is the same whether you employ one person or 20.

You need to prepare as soon as you can.  You need to think about the financial impact, do your forecasting, look at your priorities within your business and how to maintain or improve employee engagement through this exercise.

The Pension Regulator has been given the power to give fines. One of the most common reasons for fines is a situation that we’ve seen in the past where an employer offers the employee additional salary instead of offering a pension contribution. This is completely unacceptable according to the law and, to dissuade employers from trying to take this route, there is a minimum fine of £1000 for any evidence of this kind of activity.

Equally, if anything goes wrong with the whole process, the regulator would insist that an employer make up the contributions that have been missed on behalf of employees and there will be fines of e.g. £50 per day for each worker.  And throughout the process if certain stages are missed, there are fixed penalty notices that are issued of £400. Over the period, October to December 2015, 166 employers were fined on this basis.  So it is important to have a look at this and get started.

If you need help, you can contact an expert at Kirk Rice or request a copy of our Full Workplace Pensions and Auto Enrolment Guide by email to sarah.newell@kirkrice.co.uk or download the guide here.


Listen to the Kirk Rice Auto Enrolment podcast:

 


 

When should I start planning for auto-enrolment?

The regulator suggests 12 months as a good basis for planning.  At Kirk Rice, we advise that best practice is to ensure that you’re ready.  In practice, that means you’ve selected your scheme and identified all the internal changes you need to make within your processes. We suggest that organisations get that done at least three months before the staging date.  In our experience this means setting a fixed date for getting started, doing the work yourself or engaging someone to do it for you, at least nine months before your staging date and ideally 12 months.

In the marketplace there are over a dozen pension scheme providers and they all differ.  One may be better for a particular workforce than the others.  Some have employer charges.  Some want charges up front.  Some have charges that are levied every month.  And one of the most important things to consider is whether the staging date is the most appropriate time to start this pension scheme.  A lot of employers choose to start it at another time, generally in advance of the staging date.

If an employer has some form of existing pension plan arrangement in place or a stakeholder pension scheme for example with a few members, it’s imperative you start looking at that as early as possible.  It’s quite common to find that those pension schemes are not suitable, they do not comply with the law and therefore the employer has to find an alternative.  It’s better to find that out as soon as possible rather than the month leading up to your staging date.

An employer without any relevant pension experience or the time to do the work can choose an advisor to work with.  The benefit of using an experienced advisor in this market is that they’ve been through this process a few times before and they have access to research on those scheme providers and changes to the legislation.

You can contact an expert at Kirk Rice or request a copy of our Full Workplace Pensions and Auto Enrolment Guide by email to sarah.newell@kirkrice.co.uk or download the guide here.

 

Can I just use the qualifying earnings basis just like everyone else?

There is the option just to follow the law.  But the marketplace has several different providers offering different terms.  In deciding which basis to set up a pension scheme, you should be considering your workforce.  That would be the type of workforce that you have and whether there are distinct groups within that workforce. This might be by level of education, age, experience, skillset or stage in their careers. You may already know from your team that there’s either a lack of interest or a particularly high interest in pension changes.

Another thing to bear in mind is if you’re in a period of recruitment and retention or you’re about to go into that then you need a pension scheme that is going to help in that process.  Experience so far from quality employers is that they prefer to differentiate themselves and show that they’re doing more than the law requires.

So, ideally ask your staff what they would look for in a pension and what they would want from it.  In our experience, most of the staff already know about auto enrolment and know that it’s going to affect everyone.

 

Can we consolidate previous pension plans in the new employer scheme?

An important thing to remember on this is that not all the pension schemes that are on offer will encourage that or would be sensible. For example, the Government has introduced National Employment Savings Trust commonly known as ‘Nest’ which is a scheme that has to accept anyone who approaches it but it doesn’t accept transfers.  So, if that’s an important factor for your staff it’s not going to make it a sensible option.  You can find out more about Nest at http://www.nestpensions.org.uk/.

Organisations equally must consider the ongoing administration. Some schemes are set up with the employer doing a fair bit of administration and others offer to take the bulk of that away from you.

 

What’s the cheapest scheme to use?

As mentioned earlier, the Government has set up Nest.  That’s because they feared a lot of employers would find the fees prohibitive that pension companies charge. These smaller businesses may be more likely to opt for the cheapest scheme.  Hence, it was set up because the Government couldn’t be sure that pension providers would provide all employers with a pension.  So, it has a contribution charge as well as a fund based charge.  So it actually appears to be quite expensive.  Therefore, that’s an example of how carefully you need to check each of the schemes.

There are many new providers and they are competing on price.  And they’re offering very low fees and a lot of advisors would say that it seems to be unsustainable in the long run.  So, it is possible to take on a low cost pension scheme, but you might need to be prepared for changes ahead because we believe there will be consolidation among those providers because the fees appear to be too low to be a sustainable business.  We’ve already seen circumstances where some employers have signed up with the firm and it’s on its third takeover where they’ve merged with other firms to try and gain scale.

If you’d like further help on how to choose a pension scheme for your staff, check out this article.

 

I don’t have any time for this. What else can I do?

This is a question that sadly comes up a lot. Every business owner and manager is busy. The fact is that the regulator and several of the pension firms and the accountancy bodies have researched the marketplace.  And all this research shows that financial advisors continue to lead in the ability and confidence to deal with queries.  It has been their business for years to look after people and their pensions and to provide advice to companies.  For example, at Kirk Rice, we constantly keep up to date with the market and the regulations.

The research also shows that accountancy firms are another well-briefed source of information and guidance.  So, there are plenty of places to go for advice.  A good place to start is The Pension Regulator website here.  They have a guide to everything that’s needed on there.  If you feel that you don’t have the time to do any of this then really we’d urge those employers to contact their trusted advisors, their accountants, their financial advisors and discuss what services could be put in place.

What we would say is that our experience is that complying with the auto-enrolment obligations can be complex.  It’s very important that you assess and develop an action plan. If there are pension arrangements in place already for any staff, it’s essential that you discuss with them the changes well in advance of staging date.  There may be changes that you need to make to your payroll process. Smaller companies may not have a formal payroll process.  In that case, there may have to be some changes in order to be able to keep the records that you’ll need to show that you’ve been complying with the law.

In summary, there are probably some ongoing changes to every employer’s business in order to comply with these changes.  Some employers will use agencies such as their payroll providers to provide some of this.  And a lot of employers are turning to their trusted advisors for support throughout this process.

You can contact an expert at Kirk Rice or request a copy of our Full Workplace Pensions and Auto Enrolment Guide by email to sarah.newell@kirkrice.co.uk or download the guide here.

It is important to take professional advice before making any decision relating to your personal finances. Information within this publication is based on our current understanding of auto enrolment and pensions and can be subject to change in future. It does not provide individual tailored pension or auto enrolment advice and is for guidance only.  Kirk Rice LLP is authorised and regulated by the Financial Conduct Authority.


Listen to the Kirk Rice Auto Enrolment podcast:


 

It is important to take professional advice before making any decision relating to your personal finances. Information within this publication is based on our current understanding of auto enrolment and pensions and can be subject to change in future. It does not provide individual tailored pension or auto enrolment advice and is for guidance only.  Kirk Rice LLP is authorised and regulated by the Financial Conduct Authority.

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