"I like the dreams of the future better than the history of the past”
Thomas Jefferson, 1743-1826
If you cast your mind back to autumn 2012, what do you remember? The nation basking in the glow of a glorious Olympics? Or perhaps Hurricane Sandy ravaging the east coast of America? The politicos amongst you might recall Ed Balls’ (remember him?) plan to revolutionise UK education. For us in the pensions industry it marked the beginning of automatic enrolment.
October 2012 saw the introduction of automatic enrolment to the UK. Since then over 5 million workers have been enrolled into a pension, across 64,000 employers. The large employers, who were also the earliest adopters, will now be coming up to their tri-annual review. What does that mean? Well, those workers who opted out will, for the first time, be re-enrolled.
From an employer’s point of view this is where good record keeping is crucial. Without quality management information it will be incredibly difficult to determine which employees opted out and when. Missing an employee’s re-enrolment is a breach of the rules which carries potential fines for the employer. It is part of an employer’s duty to store all automatic enrolment data and the Pension Regulator can request access to the information at any time.
Good quality data is only one of the challenges facing employers. Perhaps the most important consideration is whether the right pension provider was chosen and did they deliver what was promised? Most employers will be in a contract based scheme with an insurer and they probably assume that, whilst the employer takes ultimate responsibility, the insurer does all the heavy lifting. It is well known in the industry that many insurers have not invested sufficiently for enrolment and don’t have the right infrastructure or resources in place. This in turn has caused delays and confusion for both employers and employees.
Moreover, we are still only half way through, with a further 5 million workers due to be enrolled between now and April 2019. Those being enrolled now belong to the smaller employers (with fewer than 50 employees) and there is an estimated 1.8 million of them. Over the last three years an average of 58 employers per day reached their staging date. Going forward it will be 2,000 a day, representing a Wonga-esque increase of 3500%! If some insurers are pulling at the seams already, things are only going to get worse.
If you represent an employer that hasn’t gone through enrolment yet it will probably pay to start thinking about what is required sooner rather than later. The first thing to realise is automatic enrolment is not automatic for employers. It will take many months of planning and effort to prepare and more work afterwards as you pay contributions and keep records. The Pension Regulator recommends 12 months to put a scheme in place. The ability to do something last minute is rapidly disappearing.
You may have a company scheme already in place but is it up to the job? Does it meet all the rules set out in the legislation? Are both employer and employees contributing enough and are the charges suitable? Does it have a default investment fund which can manage savers’ exposure to risk as they approach retirement? Can it do this without requiring a decision from the employee? These are some, but by no means all, of the questions you will need to tackle before you can be certain that you have a qualifying scheme.
Beyond the fundamental questions posed above there are also practical factors to consider. Have you considered who constitutes a ‘worker’? Under automatic enrolment it’s not just those on your payroll, it may also include contract workers. If they only work for you, use your offices and use your equipment to provide their service they may well have to be enrolled too. The same goes for temporary staff. What about your payroll system/provider? Is it compatible with your pension provider? Can you obtain all the data you need to run the scheme? For example, are you confident that it contains the latest correspondence address for all your staff? If the system isn’t right you will need to allocate resources and time to fix it.
The rules do allow you to postpone, by up to three months, the date you automatically enrol your workers but don’t let that lull you into a false sense of security. Your actual staging date never moves and you still have responsibilities from then. You will need to issue communications to staff informing them of their rights and they can choose to join at the original staging date. Get this wrong and you may find yourself making back payments and, again, facing fines from the Regulator.
If you want to avoid the headache though, we’re here to help. Not only can we guide you through the heavily-mined maze of legislation but, since October (outrageous plug alert), we can also provide you with a bespoke Courtiers Group Self Invested Pension Plan (GSIPP) which has been designed from the outset to meet the rigorous demands of automatic enrolment. Why not let us assess your workforce and work out the contributions? Our product conforms to the charge cap stipulated by the government and has a unique default investment strategy that should suit your employees down to the ground.
If you’re an employer who has already staged and are looking for an alternative to your existing scheme, or if you are about to stage and are interested in finding out more, please contact us.
Tuhin Ahmed BA (Hons), APFS, IMC, CertPMI
Chartered Financial Planner
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