Auto-Enrolment: How to overcome staging fright

Paul Mitchell of Towergate Financial explains what business owners can expect as they head towards their staging date

Auto enrolment is already a reality for larger employers in the UK. But soon an even bigger challenge will be upon us: rolling it out across small businesses.

Auto enrolment is gathering pace. Around 32,000 employers are expected to complete staging in the current tax year, but in 2015/16 the figure will surge to more than 150,000, including mainly small and micro employers with fewer than 50 workers. The industry is already feeling the capacity crunch, with mainstream providers able to cherry-pick their business, leaving smaller employers potentially struggling to find a provider.

Auto enrolment isn’t just about providing a workplace pension. From the point of view of the employers themselves, that can seem like the least of it. The big challenge for employers is to make sure they are meeting a raft of new regulations and doing it all correctly. It’s more of an administrative burden than anything else, which is why getting advice and looking at what support a scheme offers is so important.

Pensions and payrolls get perplexing

The assessment and reporting aspect of auto enrolment are very much dependent on your payroll software. There are certain criteria for assessing which of your workers are eligible for automatic enrolment, and you need to make this assessment not just once, but every single payroll period. That means that if you run a weekly payroll, as many small businesses do, you’ll need to assess your workforce every week. So it’s only sensible to make this an automated process, so that you aren’t constantly wasting valuable time and effort.

It’s important to note that eligibility is based on salary and age, and has no correlation with hours worked. If you’re working with a financial adviser, they will do the assessment for you (which does make life easier!) but the table below gives you the basics:

Annual earnings (2014-2015)

Age

 

16-21

22-state pension age

State pension age -74

£5,772 or below

Has a right to join a pension scheme

Over £5,772 to £10,000

Has a right to opt in

Over £10,000

Has a right to opt in

Automatically enrol

Has a right to opt in

At this point it’s worth getting the terminology crystal clear, as the terms used can be confusing. Those workers who need to be automatically enrolled are classed as ‘eligible’. Those with a right to opt in are classed as ‘non-eligible’. (You can see how this might be confusing). If ‘non-eligible’ jobholders chose to opt in, the employer must pay contributions for them. Those workers with a right to join a pension scheme are classed as ‘entitled’, but the employer does not have to make a contribution for them unless it is part of their contract of employment.

If you’re looking to automate this process, there are several assessment solutions out there that work well with existing payroll providers. Furthermore, The Pensions Regulator is set to launch a free assessment tool on their website, to become available in spring 2015. However, this will not be set up to work with other payroll systems, or with HMRC’s basic PAYE tools, as its main aim is tailored guidance rather than data. So perhaps it is not quite as useful as their excellent staging date calculator, where just by inputting your PAYE number you can see your exact staging date:

http://www.thepensionsregulator.gov.uk/employers/tools/staging-date.aspx

Will you be flying the NEST?

NEST (National Employment Savings Trust) is the government backed auto enrolment solution, and this may seem the most obvious option for many small employers. It is in many ways very attractive, not least because it is free from up-front costs. However, do take note – although NEST provides lots of information on its website, it does not provide any software to help with automatically assessing your workforce or producing the necessary communications. So while there’s no up-front cost, it may cost you more in time, effort and worry to take care of those obligations yourself. Indeed, recent NEST research suggested that only 23% of employers approaching their staging date were ‘confident’ about dealing with pensions issues. This has led to the creation of an adviser portal, NEST Connect, which allows businesses working with an adviser to use NEST as well.

But NEST isn’t the only option for small businesses. Some of the bigger pension providers such as Standard Life have created specific products for this market, aimed at providing competitive alternatives, and some of these are promising a greater level of support for smaller employers. One thing you should do before making a decision on your pension provider is talk to your trade organisation, if you’re part of one, as they may be working with a provider or an adviser to provide a solution for their members.

For example, Towergate Financial has been working with several trade organisations to create what are known as Master Trust Pension Schemes, specifically for the members of the organisation. Essentially, by working with a membership group, it’s possible to provide a cost effective solution for all the members, including clever software that automates much of the process, for a very low cost to individual members. We have created schemes for organisations such as the British Independent Retailers Association and the National Hairdressers Federation, helping to ease the headache of auto enrolment for many small business owners.

To sum up, the key to implementing auto enrolment smoothly and successfully is to understand your obligations, plan carefully how you will deliver on them – and make sure you don’t leave it till the last minute!

This article is for information only and does not constitute advice. Please obtain professional advice before making financial decisions.


More articles