In the past two years, almost 37,000 employers in the UK have complied with the new regulation to automatically enrol their employees into a workplace pension.
Almost five million individuals have been auto-enrolled into a workplace pension scheme in that period, but it is only the beginning.
Those companies with fewer than 250 employees have already started the process of implementation. From April 2015, that requirement will extend to companies with fewer than 50 workers.
The Federation of Small Business has estimated this means 720,000 firms will face having to provide a workplace pension scheme for the first time. This is a fundamental change and for some will be a daunting challenge.
GET IT RIGHT, FIRST TIME
Though we expect the Pensions Regulator to apply a common-sense approach, firms face potential fines of up to £10,000 a day if they miss their staging date.
Unlike the introduction of stakeholder pensions in 2001, there’s more to auto-enrolment than simply choosing a provider.
Employers have a legal obligation to ensure they inform their employees of the changes to pensions and the options they have available. It is vital that business owners take the initiative and give as much information as possible to their workers.
Yet, despite being on the horizon for some considerable time, there appears to be a lack of understanding about what this means for UK workers.
A survey conducted by Sage of more than 1,000 employees who currently qualify – or will qualify – to be auto-enrolled showed that almost a quarter had yet to receive any information from their employer.
Although this 24 per cent had heard of automatic enrolment, they did not know how it was going to affect them.
Having the correct software can help take care of the heavy lifting by simplifying processes and cutting down on the administration
The survey also showed that over a fifth found the terms “auto-enrolment” and “workplace pensions” confusing, and a third of employees would prefer their boss to provide written material that explains the changes in an easy-to-read manner.
When pensions minister Steve Webb referred to auto-enrolment as the “quiet revolution”, he didn’t mean it to be introduced without discussion with employees.
Government agencies, such as the Department for Work and Pensions, and the Pensions Regulator, as well as providers such as Sage, offer guides to the auto-enrolment process as a first port of call, so there are no excuses for businesses not getting fully up to speed on the changes and inform their workers accordingly.
We understand it can be daunting to know how to go about complying with new legislation on a subject that has never affected your business in the past, but getting to grips with it now will save an awful lot of pain in the long run.
WHEN DO YOU STAGE?
Find out when your staging date is and start to plan now. It may seem like a long way off, but it is recommended that firms spend at least 12 months preparing, because extra time is needed to sort out administration as well as integrating payroll into the pension scheme. These are not always straightforward and if you get it done early, you have the luxury of being able to test the new processes.
FIND THE RIGHT PROVIDER
Many small business owners have told us they fear their size will mean they will be forced to take uncompetitive rates for their pension scheme. In reality, starting the search early can reduce that risk. Approach an independent financial adviser experienced in advising on the best pensions scheme for your business, or your payroll provider, who can advise on the systems you require to administer the changes.
GET EMPLOYEES ON BOARD
The business is responsible for communicating the changes to its employees. You must not point employees in any particular direction, only make them aware of their options. All employees have the right to opt-out of auto-enrolment, though opt-out rates so far have been lower than expected.
GET THE LATEST SOFTWARE
Improving efficiency will help to reduce the time and money you spend on auto-enrolment. Having the correct software can help take care of the heavy lifting by simplifying processes and cutting down on the administration. Ask where in the process improvements might be made.
ACCOUNT FOR CASH FLOW
By 2018, business will have to pay a minimum 3 per cent of employees’ qualifying earnings into a workplace pension. This is much higher than the starting threshold of 1 per cent, so think ahead about how this will impact on your cash flow as a business.
RETURN TO THE BEGINNING
Payroll is at the heart of administering auto-enrolment, so ask your payroll provider how they will support you. If they can’t offer the support or the solution your business needs, then you have time to switch suppliers, and save yourself some cost, stress and effort.
The longer you leave preparation, the higher your costs. Your preferred provider may not have capacity to take you on and even if they do, you may incur unnecessary administrative cost to get systems in place quickly. And then there are the penalties for not doing it properly.
Following these simple suggestions will give you and your business enough time to deal with these considerations, and will save you not only sleepless nights, but also implementation costs. Remember, if you fail to prepare, you’d better be prepared to fail – and that comes with unpleasant consequences.
AUTO-ENROLMENT CASE STUDY
Southampton-based Premier Coffee is a rapidly expanding Costa Coffee franchisee which now runs 32 stores. The company employs nearly 400 people who are paid fortnightly. The nature of the hours means it experiences a 50 per cent turnover of staff every year, with this increasing by around 20 per cent at Christmas. As a result, the introduction of automatic enrolment has created new challenges that have had to be overcome.
All of the preparation work we put in, combined with using the Sage Pensions Module, meant we were able to absorb the time and cost of auto-enrolment into the normal payroll run
Now ten years old, the company used to outsource payroll to a bookkeeper, but this is now looked after by an in-house team of five people using Sage 50 Payroll with the Pensions Module. The Pensions Module works in conjunction with the latest version of Sage 50 Payroll to automate the process and help eliminate the burden of auto-enrolment.
To help ensure a smooth transition to auto-enrolment, finance manager Sharon Gibb took advantage of on-site training from Sage. This meant an automatic enrolment expert visited their office to take the payroll team through what it needed to do to meet the requirements of the legislation. The training allowed the team to learn together, while asking questions as a group, which was important so everyone could support each other.
“I’d been worried about not knowing what to expect with auto-enrolment, but our training with Sage gave us confidence to see how easy it would be. All we needed to do was follow the on-screen instructions,” says Ms Gibb.
“The advice I would give to employers approaching their staging date would be to educate themselves, make sure they understand the requirements and also understand the jargon so they can communicate it to their employees. It’s important to have someone to talk to you. We found the team training invaluable – we all picked up different information and could help each other.
“We thought we’d need an extra full-time person to administer automatic enrolment when, actually, all of the preparation work we put in, combined with using the Sage Pensions Module, meant we were able to absorb the time and cost into the normal payroll run. We’ve now successfully staged, enrolled our employees into a pension and, to date, we’ve only had five employees opt out.”