Now it's the turn of the SME

So we have reached the one year anniversary of auto-enrolment (AE), with figures from The Pensions Regulator showing 1.6m people have been auto-enrolled into a qualifying workplace pension scheme. With opt out rates of just 9%, AE's first year appears to have been considerably more successful than many skeptics predicted.

There is still a long way to go though, with thousands of employers still preparing for their staging date and smaller firms now being affected - the start of 2014 will see those with 250-499 employees having to comply. So what lessons can these employers take from the first year of auto-enrolment?

One major plus point is that the market has evolved, which is good news for smaller employers. Processes have become slicker, meaning those going through auto-enrolment can expect to be dealt with more quickly and efficiently than a year ago.

The basic requirements are the same for smaller firms as with the larger organisations;

  • Nominate a point of contact
  • Know your staging date and develop a plan
  • Assess your workforce
  • Review your pension arrangements
  • Communicate the changes to all your workers
  • Automatically enrol your eligible jobholders
  • Register with the regulator and keep records
  • Contribute to your workers’ pensions

However, employers still need to take the necessary time to prepare if they are to avoid major difficulties further down the line. If an existing scheme is in place, slightly less time may be required than if no scheme exists, but beginning the process at least 9 months before staging is vital.

We have learnt that AE is an onerous task and employers have a lot of work ahead of them. Smaller employers will generally have less resource yet they still need to get to grips with AE.

Employers need to take the time to understand what the project really entails and what external support they will need. Larger employers had whole teams dedicated to this and yet as we move on to the smaller employers, we will be getting people managing auto-enrolment around their day job.

While the prospect of taking on a project like auto-enrolment may seem daunting to employers lacking the resource of their larger counterparts, getting the right people involved at an early stage can solve a lot of problems in areas like payroll and HR.  Early engagement with payroll providers in particular is all important.

The rules of auto-enrolment are complex and the administrative challenges for small employers will be far more of a burden than the actual cost of the contributions. Auto-enrolment will take a long time to prepare for and many firms, especially if they have never been involved in pensions, will struggle to manage the processes. They will need help and they should plan well in advance of their start date. If they do not plan 9-12 months ahead of time, they may well be too late and if they fail to comply with the rules on time, they can face very large fines.

It is also not clear whether the pensions industry and advisers actually have the capacity to serve more than one million employers who are going to have to start auto-enrolment in the next few years. For example, next summer alone, tens of thousands of employers will reach their start date and this is more than the total number of employers who have started pension schemes in the past few years put together. How the industry will cope with this capacity crunch is not clear. There is already evidence that some major providers of employer based pensions are already turning employers away.

Any firms with staging dates before the end of 2014 should be initiating dialogue with their advisers now, to ensure that they are able to implement appropriate arrangements for their employees in good time.

David Squire, Partner

If you like this article and would like our FREE updates sent straight to your inbox then subscribe to our monthly newsletter

Subscribe

Get in touch

To find out more about how we can help you or your business, call us on 0808 144 5575 and speak to a member of our team. Alternatively use our contact form to send us a message or arrange a callback.

CALL 0808 144 5575

or

Contact Us

All content © 2015 Armstrong Watson. All Rights Reserved. Website by Simon Pighills.

Armstrong Watson LLP is a limited liability partnership registered in England and Wales, number OC415608. The registered office is 15 Victoria Place, Carlisle, CA1 1EW where a list of members is kept. Armstrong Watson Accountants, Business & Financial Advisers is a trading style of Armstrong Watson LLP. Armstrong Watson LLP is regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities.

Armstrong Watson Audit Limited is registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales. Registered as a limited company in England and Wales No. 8800970. Registered office: 15 Victoria Place, Carlisle, CA1 1EW

Armstrong Watson Financial Planning Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 542122. Registered as a limited company in England and Wales No. 7208672. Armstrong Watson Financial Planning & Wealth Management is a trading name of Armstrong Watson Financial Planning Limited. Registered Office: 15 Victoria Place, Carlisle, CA1 1EW