Auto-enrolment has been one most of the most talked about pension reforms ever. It will mean that for the first time, every employee in the UK now has the benefit of saving for their retirement in a workplace pension scheme. It also means that between now and 2018 every business – large, medium and small – will have to crack on with it.
Companies with less than 250 employees are the next group to run across the pension finishing line with around 20,000 companies having to be AE compliant between May and July 2014. So as thousands of SMEs head for the AE challenge, what lessons and advice can be learned from the FDs and HRDs of FTSE 250 companies who’ve already been through it?
What is clear is that many larger employers simply underestimated the extent of legislation involved and the complexities of auto-enrolment overall. Many also assumed that pension products would handle the whole process for them and didn’t grasp that the responsibilities and duties lie solely with employers. The biggest mistake for many was to assume that their current pension providers were obliged to take the auto-enrolment employee population (when, in fact, many providers simply refused) and, where they were accepted, to assume that this meant the provider would do all the preparation and planning work.
Through our experience of working with large corporates on their auto-enrolment implementations, we have identified a number of key steps and approaches that SMEs can take in order to navigate through this AE minefield.
1. Don’t go it alone – bring key players in the business together to have open and frank discussions, these should involve HR, finance, pensions and payroll providers and make sure you’ve consulted any relevant investors or board execs about the financial side to avoid any financial curve balls.
2. Allow plenty of time – ideally at least four months before Staging Date as many corporates underestimated how complex AE would be to implement and then had to work to extremely tight timescales or completely revise to a less desirable solution.
3. Pay monthly – weekly payroll is widespread in big and small businesses and implementing AE into that makes the workload even heavier so it could be time to consider switching to monthly payments?
4. Get the right support and advice – Pensions Minister, Steve Webb, said employers didn’t need additional help and advice in ‘staging’ AE. Our experience suggests he was wrong. Only a handful of employers in the UK have the resources to handle this alone. An adviser will know what to do when and can take away a lot of the headaches and sleepless nights for you.
5. Keep talking – communications are crucial and making sure your employees understand AE and what it means to them personally will go a long way. But it’s also important to do it sooner rather than later, the first time an employee knows of AE should not be when they notice salary deductions on their payslip.
6. Yes, pensions minister – there’s a lot of complex legal stuff to deal with, get specialist advice to make sure you don’t fall foul of other pension and employment legislation.
7. Stay out of the dock – there are fixed fines and punitive daily additional fines for getting it wrong. Be confident that you have this covered to avoid financial and legal issues further down the line.
8. Get techy with it – there are lots of solutions out there for SMEs but there is also a lot to consider before investing – take time to research costs, restrictions, how it will work with other existing benefits, whether communications are included and so on. But if you do want to research all options, make sure you start early enough.
9. Beware the sales pitch – make sure you know exactly what you are buying and that it is lined up to cover the whole solution from assessment, employee communication and ultimately to work effectively with a suitable pension provider and their processes. Check what you’re already getting as many communications, for instance, are provided through your pension provider, so there’s no need to pay extra for it. Also, check your choice doesn’t fall short of actually supporting your pension solution, for example, is it restricted to certain Pay Reference Periods only?
As companies prepare to become AE compliant, choosing the right technology as well as getting the right advice and support will be critical to their AE success.