Everything a company Director wants to know about Auto Enrolment
What is Auto Enrolment?
Auto Enrolment is the name given to implementing and running a workplace pension for all employees. Each employee needs to be assessed every pay run to ensure they are correctly assigned into one of 3 categories . This identification will determine if the company has to actually contribute.
The Auto Enrolment process must allow employees to opt in or opt out and send the right communication at the right time. The process you put in place must then enable the correct pension contributions to be made to each employee.
Why has Auto Enrolment become law?
The government has identified that the UK is heading for a retirement crisis. As a nation we save less for retirement than nearly any other developed country. In order to avert retirement poverty, legislation was introduced to make it compulsory for every company in the uk to provide and contribute to a pension for their employees and for every employee to also contribute (as long as they are earning over a certain amount.
– To be automatically enrolled you must earn £10k plus
– Between £5772 and £10k you have the option to opt in
– On both the above the employer must also contribute
– Under £5772 you can request to join but the employer does not have to contribute
The percentage of earnings that are contributed will rise in stages between now and 2018. At present the contribution levels are low with only 2% of qualifying earnings being contributed (1% by the employer and 1% by the employee . In 2018 this will have risen to 8% (3% from the employer and 5% from the employee.
What is the point and benefit for employers?
The main benefit for employers will be to avoid paying substantial fines which are based on the size of your company. At present the fines would be £500 per day (companies with 5 – 49 employees) for every day you are late in setting up your pension.
There are other benefits such as valuing your staff and staff retention.
If you use salary exchange then this will also reduce the employers and employees NI contribution but salary exchange should be used with advice.
The main benefit for employees is that by contributing to a pension they start to address the issue of retirement poverty and plan for their future.
What does staging date mean and how can you find out yours?
Your staging date is the date by which your company must have its pension and Auto Enrolment processes in place by. Each company has been given its own staging date and is based on the number of employees you had on April 1st 2012. Information on your company was obtained by the pension regulator from HMRC. You can find this by going onto the Pensions Regulator* website and enter your P.A.Y.E reference. You will be told your staging date immediately. Alternatively we can find out for you.
*By clicking on one of these links you are departing from the regulatory site of Tailored Auto Enrolment. Neither Tailored Auto Enrolment nor Intrinsic is responsible for the accuracy of the information contained within the linked site
Once you know it can you delay it?
You cannot change your staging date. You can postpone the date you start contributing into the pension by up to 3 months but you must have the processes in place by your staging date.
What happens if you ignore it and how will anyone find out?
The pensions regulator will be expecting your confirmation that you have complied with legislation 5 months after your staging date. If they have not received notification you will be getting a phone call from them. Repeated obstruction will be met with a fine or in the worst possible scenario a prison term.
Is this info that is being gleaned from having introduced rti?
The staging dates were set before RTI was introduced.
What levels of auto enrolment can an employer choose from through an Independent Financial Adviser?
There really should be 3 levels of service for you to choose from.
– At the basic level you could opt for one of the master trust pensions such as the government backed scheme called NEST. But there is no software that assesses your workforce and calculates contributions so you would either need to do this yourself, ask your accountant to do it or use a new breed of software called middleware to calculate and communicate for you .
– At the opposite end of the scale you could pay an Auto Enrolment specialist to source a pension provider for you and project manage the whole implementation.
– And a third option which enables you to bolt on services you want rather than going for full blown consultancy.
What is NEST?
NEST (National Employment Savings Trust) is a pension scheme set up with government money to ensure that there was always a provider to accept any pension contribution, no matter how small . It doesn’t provide the necessary software to keep you compliant so you need to source that part separately. Some accountants are looking to do this but are uncomfortable taking responsibility for all of the communication and pension contribution calculations. Our Easy Auto Enrolment Plus Solution provides this service and takes the responsibility away from you.
Our Easy Auto Enrolment Plus Solution gives you the option to add features such as a seminar for your staff or salary exchange advice. Our full consultancy service will endeavour to source a pension provider with fund choice for your employees and fully integrating and liaising with your payroll department. In a nutshell – we do everything.
What’s the benefit to an employer?
Every employer has different feelings on this. Some see it as a way of retaining staff and making staff feel valued. Some see it as an extra tax and yet another layer of bureaucracy.
Full consultancy allows time to be taken to establish what sort of scheme the company wants and what it says about their company. Employers see this route as an investment in their staff and their processes to ensure smooth operational running. Peace of mind and reducing the risk of fines is worth the money. The employee will also be able to have a choice of funds into which to invest.
The micro solution gets the job done at its most basic vanilla level. It makes sure you are compliant and keeps costs down. The downside is that there are only 1 to 3 funds available so some employees who want more choice may feel short changed.
What are the advantages of The Executive Package?
Companies we have staged so far have valued the one to one meetings at their office . They also like being able to email or call and ask questions . They also value the full project management and the peace if mind it brings. For them full consultancy is worth every penny.
Surely we can cut costs as employers and DIY?
If you have a payroll package that supports Auto Enrolment and you have the time to sit and read all the rules and regulations then this is of course an option for you. I don’t want to put you off if this is the route you want to take.
We would suggest you look at how much capacity your payroll person has left. In our experience the person in the back office doing payroll is already stressed and working at full capacity. Also the person who does this is usually close to retirement age so you need to think carefully about who will pick up the reigns when they retire.
What if employees have their own pension?
There is nothing to stop an employee having more than 1 pension, as long as they are not exceeding pension contribution limits . They could decide to opt out of the scheme you set up but you do not have to contribute to their other pension unless you decide to do so.
Transfers into the scheme you set up can not be done automatically at present. Individual pension advice from a qualified pension adviser is needed. We provide this expertise through our sister company Tailored Wealth Financial Management.
How do we know we are choosing the right funds to suit all when everyone’s attitude to risk is different? Is it an average risk of all?
This is one of the weaknesses of Auto Enrolment. Your responsibility as an employer only goes as far as setting up the Auto Enrolment processes and deciding on a pension provider. All money goes into what’s called the default fund. This fund will need to be balanced risk and acts as a catch all. There your responsibility ends as far as fund choice and risk is concerned.
If employees want more adventurous funds or more cautious funds it is up to them to pay a financial adviser for individual advice. However if you have elected one of the master trust pension providers your staff won’t have this choice.
Surely employees coming and going is going to create a nightmare if the paperwork has to be completed?
The simple answer is – yes it will. That is why it makes sense to choose a system that helps keep track of all employees, communication and pension contribution.
Is it a case of keeping ex employees in your fund until pension age or do you transfer out?
The pension that each person has is an individual one and the idea is that they take this with them where ever they go. The reality is that someone could end up with lots of little pots of pension money. That is why the regulators are looking at the possibility of automatic transfers . This is a work in progress.
Supposing they don’t want to transfer?
There are no guidelines on this as of yet so it’s a case of watch this space.
Can you set the annual IFA fee per employee forever or are there going to be opportunities to hike them once they’re in?
No fees for an adviser can be taken from an employees pot of money unless individual advice has been given and the employee agrees the level of service with the adviser. The employee can turn this payment off and on whenever they choose.
Supposing you don’t have confidence in your IFA at anytime can you change IFA’s?
You can change any providers, processes and providers at any time subject to the contracts and terms agreed.
How many providers are there and how do you chose as an employer what to invest in or do they choose you based on size?
According to The Pensions Regulator there are now between 30-40 propositions on the market of varying shapes and sizes. All of the bigger pension providers have minimum contribution levels which means that smaller companies with low earners may not get terms. There are also issues with how comprehensive a proposition is. Some companies will only do your communication, some will only do the pension, few will do your Declaration of Compliance. That is why we are proud of our 3 Auto Enrolment solutions- each of them will ensure you are compliant by providing a full end to end process.
If you did not offer Auto Enrolment can employees demand it?
Absolutely. The Pensions Regulator will also be chasing a company if they have not sent in their Declaration Of Compliance 5 months after staging.
For a free initial consultation at your office or over the phone we are here to guide you through what appears to be a minefield but we guarantee to make this a clear process for your business.
We are here to help you from our London, Kent, Plymouth and Devon Offices.
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