Come April 2017, all businesses in the UK will have to enrol their staff into a pension scheme, but what does that mean for your business?
The Pensions Regulator is advising employers to begin this process early to allow ample time for setup. The idea of Auto Enrolment is simple, however the implementation can be troublesome without allowing the necessary time to complete the associated tasks.
Broadly speaking, employers need to:
- Provide a suitable and compliant workplace pension scheme.
- Assess workforce to ensure all eligible employees are enrolled in the scheme.
- Make contributions in line with the statutory minimum.
- Communicate with employees.
Pensions can be complex. This makes it difficult for employers to evaluate their Auto Enrolment options. Business owners are often limited by a lack of experience and may not have the knowledge they need to choose well.
What are the Key Challenges for Employers?
Selecting a Scheme
There are many different options to consider when choosing a supplier. Due to the volume and complexity of the available solutions, the research required to select a scheme is a major drain on time and resources.
Implementation
There are risks associated with handling employee communication in-house. Strict guidelines around employee communications and the short time scales allowed for responses make the process difficult, as well as opening the door to accusations of coercion.
Non-Compliance
The consequences of non-compliance are significant. The pension regulator issues an automatic fine of £400 the day after a missed staging date and a further £500 for each subsequent day after that date. Non- compliance is being rigorously monitored. If it becomes evident that an employer does not intend to comply with Auto Enrolment legislation, the Regulator can issue penalties ranging from uncapped daily fines, to criminal proceedings against individuals. There are also cases where the Regulator can force employers to put their employees in the positions they would have been in, had the employer been immediately compliant with the auto enrolment obligations.
Cost
The purchase of auto enrolment compliant software is costly, starting at around £750 as a one off fee and it is often accompanied by a monthly service charge. This cost coupled with the real logistical challenge of correctly utilising the software is a further burden to an employer even beyond the added cost associated with auto enrolment itself.
According to a study conducted by the Centre for Economic and Business Research, the one-off time burden of the auto enrolment procedures can be up to 103 man days plus a further 3.5 man days a month to keep up to date. This places an incredible burden on business owners, particularly SMEs, who lack the resources to employ additional in-house support. The complex nature of the auto enrolment process coupled with the significant amount of time and resources it requires leads many businesses to become vulnerable to severe penalties.
Managing Stakeholders
There are likely to be a number of different stakeholders involved in auto enrolment implementation. They include: HR, payroll, finance, internal communications, pension providers, consultants and employees. Employers must appoint an individual to manage the communications between these different stakeholders and ensure that all required activities are completed.
What are the Options?
DIY Schemes
Employers have the option to set up their own compliant schemes. This may seem like an attractive option because of the low initial expenditure, but there are a number of other factors to consider. The complexity of most pension schemes require the business owner to have a significant amount of pension knowledge, not only to navigate the assessment questions evaluating employee eligibility, but also the management of all the associated processes.This demands a considerable amount of time and resources that may not be foreseen from the outset.
Challenges
- Requires the employer to handle all employee communication. This can result in miscommunication on key issues and even expose the employer to future claims of coercion by employees.
- Takes a lot of time to research and compare the different available schemes. Despite spending a considerable amount of time and energy researching all of the available options, there is no guarantee of acceptance.
- Pensions are complex and often require expert knowledge to understand completely. Mistakes made in the initial set up stage will be costly to go back and fix. These mistakes could also result in heavy penalties.
- Employees may not be able to transfer in or out of the scheme. If a decision is made without sufficient understanding, high levels of employee dissatisfaction are likely.
Assisted Solutions
There are a number of suppliers that provide guidance and tools to help businesses with Auto Enrolment. These range from consultants offering to assist with implementation to software packages designed to simplify the process in-house. These options can be helpful, however they are partial solutions and can be very expensive. Despite the significant cost of assisted options, the employer still remains vulnerable to the risks associated with employee communication and complex decision making.
Comprehensive Outsourced Solutions
There are suppliers that provide complete solutions and can manage the process completely from the implementation, to the ongoing communication and requirements.
