Pensions Auto-Enrolment

Now that the festive season is over and our thoughts turn toward 2015, there is one thing that should be on the ‘to do’ list of all employers for 2015 and I would encourage you to make auto-enrolment one of your New Year’s resolutions that you do fulfil!

You may already have heard of auto-enrolment but in a nutshell it is the UK Government’s latest attempt to ensure that pension provision is made for all “workers”.  There are various things which all employers will need to give some consideration to and I have detailed below some practicalities of dealing with these:

  • If you employ one or more individuals you will need to give careful consideration to the setting up of a pension scheme which meets the new rules.   It is very unlikely that you will be able to avoid this and the penalties for ignoring the new law are severe.
  • Even if you currently have a pension scheme for your employees, it may not meet the requirements, e.g. the annual charges made by the insurance company may be too high or the level of contributions may be too low.  Check with your pensions advisor now.
  • Theoretically you can set up a suitable scheme with an insurance company, probably through an independent financial advisor (IFA) as an alternative to the fall-back position which is the “National Employment Savings Trust” (NEST), a government sponsored arrangement.
  • In practice insurance companies are going to be reluctant to deal with schemes for small numbers of employees or schemes involving large numbers of lowly paid employees, particularly where staff turnover is high.
  • Similarly, in practice, IFAs will need to make charges for assisting you with your obligations and those charges could become disproportionate.
  • Even assuming the nature of your workforce meets the minimum criteria of an insurance company, do not assume that they will still be interested if you leave contacting them until the last minute.  The insurance industry will be unable to cope with the work flooding in at the last minute and, if they have any capacity at all, they will “cherry-pick” the most attractive opportunities.
  • There will be a huge amount of administration to deal with in relation to the implementation of auto-enrolment. Depending upon your aptitude for dealing with this kind of administration and the time available, you may prefer to instruct an IFA to help you.  Obviously, your decision will be swayed by the cost and this would need to be ascertained.
  • There will still be a substantial administrative burden on you if you opt to use NEST.   It is unlikely that an employer is going to want to use NEST if his scheme is sufficiently large to be attractive to an insurance company who, combined with an IFA, can relieve some of the burden.
  • Payroll software may be an issue in relation to auto-enrolment and you will need to check whether that is likely to be a problem.  One or two “dry runs” in advance of the new arrangement becoming operative would be wise. We provide an outsourcing service for payroll and will be pleased to give you a costing if it is of interest.

The essential message is that auto-enrolment is not going away.  If you don’t know it already, make sure you check the date (“staging date”) from which it must be operative in your business’s case – you can go to www.thepensionsregulator.gov.uk/staging in order to ascertain the date which applies to you by entering your PAYE reference number.

I would also encourage all employers to start making arrangements to comply as soon as possible and at least 6 months before your staging date.  To the extent there are choices available, you should then be able to exercise them.  If you leave it until the last minute you are likely to end up in difficulty, because those running NEST, as well as the insurance companies and IFAs, are likely to be overwhelmed.

We have produced our own factsheet covering auto-enrolment in more detail and if you would like a copy of this then please contact any of our offices or by email to mail@pearsonmay.co.uk. The factsheet is also available on our website by clicking the ‘Payroll – Free Guide’ icon on the homepage.

The above is for general guidance only and no action should be taken without obtaining specific advice.  May we take this opportunity to wish

you all a happy, healthy and prosperous 2015