Auto enrolment (AE) is one of the biggest public policy changes of our generation. The Government, which has long wanted to manage its burgeoning bill for providing pensions, has selected employers as the channel to deliver worthwhile retirement pots for the people. For SMEs in particular, picking up this responsibility can seem like a scary prospect, particularly when some of the larger employers – who might be expected to have the resources to take this in their stride – have already been pulled up for failing to implement auto-enrolment correctly.
Given the necessary focus on pensions, it might seem an unnecessary distraction to think about other aspects of your employees’ packages, but a little thought now could pay dividends in the long run – especially if you get someone else to do the thinking for you.
Staying legal is obviously the first priority when it comes to getting through AE successfully, so I’m not advocating that anybody lose sight of this. There are some complex communication obligations involved but there’s also absolutely no need to panic. Give yourself six months before the staging date applicable to your company – when AE kicks in – which is determined by how many employees you have, and get some expert advice.
If you don’t know what staging date applies to your company, you can find out from the Pension Regulator’s website. And if you don’t have a financial adviser already, sites such as www.unbiased.co.uk/business can help point you to some options.
Your adviser will almost certainly point you towards a software solution to ensure you satisfy your legal obligations, but the software should also have the capacity to link seamlessly with other financial benefits, even if these aren’t offered at the moment – you won’t want to face the dilemma of changing your systems or having to operate several stand-alone ones if you later decide to introduce new benefits. In addition, the software should minimise the effort involved in handling data within your company or in reporting to the supervisory authorities – nobody wants, or can afford to get bogged down in red tape. If it sounds like data handling is going to become a chore, don’t be afraid to ask your adviser what else is available.
The same questions need to be considered when selecting your benefit providers. Your pension provider of course needs to be capable of delivering good returns on your company’s and employees’ contributions, but they have to be able to do this within the constraints on charges set by AE regulations. Some of the established pension providers are only looking for large companies’ business on these terms, because they need big volumes to make it viable for them.
The Government anticipated that it may be difficult for some companies to find a pension provider willing to take them on, which is why it set up NEST (National Employment Savings Trust), but this isn’t your only option. Other providers have also stepped in, such as NOW: Pensions and The People’s Pension. Although both are new names in the market, both have considerable track records in handling low-cost pensions generating good returns. NOW: Pensions have successfully run the Danish National Pension for more than 40 years, while The People’s Pension is a new entity set up by B&CE, a not-for profit organisation founded in 1942 originally to provide construction workers’ pensions.
As with pensions, you may need to look outside familiar names when considering other financial benefit providers. Just as your pension arrangements are set up to run with the minimum hassle, you want to get the same from whoever is providing, for example, death and disability cover for your employees, whether that’s now or in the future. As in selecting your pension partner, it’s important to get advice from an independent expert.
So how would I sum up my recommended approach to AE?
- Get advice. There are pitfalls, but an expert will steer you around them. Doing a DIY job is almost certainly going to be a false economy. Talk to an independent financial adviser.
- Be prepared. Know your staging date – the date when companies of your size (by number of people) are required to commence AE – and as a rule of thumb give yourself six months to get new systems and processes in place. Make sure AE solutions offered to you make light work of data handling.
- Benefits are more than just pensions. Yes, your immediate need is to comply with pensions rules once you hit your staging date, but your software should be capable of handling any other benefits you provide now or in the future.