PHPI looks at how pension auto enrolment could affect your business.
This year, over 500,000 small employers will be affected by auto enrolment and, by law, they will have to automatically enrol their eligible employees into a workplace pension and make contributions to that pension. Morten Nilsson, CEO of NOW: Pensions, says: “For anyone who runs a small business, auto enrolment can feel daunting. Smaller employers tend to have little or no experience of pensions, they don’t have the dedicated in-house resource that larger companies enjoy, nor do they necessarily have the support of an expert adviser. The key is to tackle it early and plan.”
NOW: Pensions has produced five top tips for employers approaching auto enrolment:
- Plan ahead and prepare
The Pensions Regulator recommends employers begin their planning 18 months in advance of their staging date. However, of the companies that signed up with NOW: Pensions in the fourth quarter of 2015, 27% completed their application either very close to their staging date or after the deadline had passed. Morten Nilsson says: “Leaving auto enrolment to the last minute will inevitably result in increased administrative pressure and unnecessary stress. The simple truth is the longer businesses allow themselves to implement the changes, the easier the process will be.”
- Include auto enrolment in your budget forecasting
The cost of implementation, planning, payroll modifications, assessment, communications and record keeping will depend largely on the decisions an employer makes regarding suppliers, providers and their current internal structures. Some employers may also want to seek external advice so will need to budget for this. Initially, contribution levels are set quite low but by 2019, employers must pay a minimum of 3% of qualifying earnings per employee into a pension scheme.
- Think carefully about scheme selection
Employers should take the time to consider their provider. For employers completely new to pensions, it may be wise to seek guidance from an expert adviser. Good quality schemes should be able to demonstrate their quality through third party assessments such as The Pension Regulator’s master trust assurance framework or Pension Quality Mark, these are designed to highlight schemes that are well governed with low charges and good member communications.
- Think about your contribution structure
The reality is auto enrolment minimum contributions won’t be enough for most people to be sure of a comfortable retirement. However, NOW: Pensions’ research suggests nearly one in three (30%) firms plan to contribute more than the legislative minimum. Over half (57%) of those surveyed who intend to pay more than the minimum say they believe it will help with the recruitment and retention of employees.
- Harness the power of payroll
For auto enrolment to run as smoothly as possible, your payroll system needs to have an automated exchange of data with your pension system. NOW: Pensions’ experience is that employers supported by a payroll bureau are significantly better prepared for auto enrolment than those that are managing the administration of their schemes alone. Professionalising your payroll ahead of introducing auto enrolment is wise and the benefits shouldn’t be under estimated.