Auto Enrolment (AE), the scheme by which millions of workers are being automatically enrolled into a workplace pension by their employer, has been a great success so far. More than two million new AE pension scheme holders have started saving for retirement – many of them for the first time – and others have boosted their retirement saving by doing so. Encouragingly, only 9% of workers are opting out of AE schemes when they are offered them – which is a lot lower than the 30% that was forecast.
The first wave of the scheme began last year, with businesses of more than 120,000 staff starting first. The Department for Work and Pensions (DWP) estimates that 600,000 employees became part of the scheme by the end of 2013. Over the next 6 years, until 2018, small and medium-sized enterprises (SMEs) will start enrolling staff. SMEs with less than 50 workers will not start enrolling their staff until June 2015 at the earliest. But even the smallest employer – such as an electrician employing a full-time assistant – will be obliged by law to enrol their staff. All employers need to know what is expected of them – and, just as importantly, when. Here are our 5 top tips for all bosses of SMEs in Chichester and the West Sussex area.
1. When is your ‘staging date’? Don’t leave it too late.
You have a quite lengthy ‘to do list’ for auto-enrolment and, given how busy you probably are, it will take some time to complete. Don’t leave it to the last minute. You will be required to retrieve key information from various systems (see tip 2) and enrolling your staff to the scheme might mean changing their contracts of employment; this would require a three month consultation period. An early start is recommended – ideally 6 to 12 months ahead of the staging date.
If you’re not sure, you can FIND OUT YOUR STAGING DATE HERE
Make sure you understand how the staging date ties in with other key events such as the pay reference period and payroll cut off. Combining these dates with the dates when actions need to be completed as a result of auto-enrolment will help you work out the impact on your business.
2. The quality of your employee data will be very important
Do not underestimate the complexity of the information required for employee eligibility assessment, joining, contributions and opt outs. Treat it as a project in itself. It will take a significant amount of time to retrieve data from various systems across different payroll cycles. The quality of the data supplied and the processes for obtaining the data will be crucial to the success of the project. The Pensions Regulator’s website explains in more detail about the data required, but you may wish to make use of an independent auto-enrolment specialist to help you understand exactly what you need to do.
3. Choose your contribution basis now
Your chosen auto-enrolment scheme/s must meet a quality standard, based on a minimum level of benefit or contribution. So you may need to start budgeting for extra costs. There’s more than one acceptable contribution basis. And they can be varied across your workforce to suit different remuneration packages (salary, bonus, commission, etc.). What will work best for your employees? You can choose the contribution basis to suit your business, providing it passes one of four tests. Good advice here can save you both time and money.
4. Review the default investment funds for existing schemes
You have a regulatory responsibility to make sure the auto-enrolment default investment option is suitable for those of your employees who will be enrolled to the scheme. Existing investment funds may not be appropriate. Advice is crucial to getting this right. You also have a responsibility to have a way of ensuring that the default investment option continues to be reviewed regularly. This is something a specialist adviser can support.
5. Communicate with your employees early
Clearly communicating the changes to your employees, well in advance of auto-enrolment, will make sure that when it happens, they understand why money is being deducted from their pay. If they understand the scheme, they will appreciate the value that your employer contribution is adding, as well as the Government contribution. A specialist adviser will be able to tell you the best way of communicating these changes to your organisation – and the best times to do so.
If, having read this blog, you’re still not sure exactly how you are going to approach auto-enrolment, then please call Marchwood IFA now and ask us to review your auto-enrolment plans. We can help you through the whole process, particularly the selection of the right pension scheme for your employees and how to clearly communicate its benefits.