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

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