As the introduction of pension auto-enrolment becomes increasingly imminent for large organisations (from 1 October this year), we have attempted to answer some of the key questions that HR directors raise about the issue in a bid to help them deal with it as effectively as possible:
Q. What is the timetable for auto-enrolment?
A. The government has issued a revised timetable with the principal aim of giving small businesses more time to prepare. But it is each employer’s responsibility to identify when they need to start. The implementation date for the largest organisations (with 120,000 employees or more) remains October 2012.
Medium-sized employers (50-249 staff) have been provided with new staging dates of between April 2014 and April 2015. This means that they should continue undertaking their set-up arrangements as previously.
Businesses with fewer than 49 staff, however, will start being staged from May 2015, a date that has been pushed back from the previous timetable that was due to kick off in April 2014.
Q. How do you choose between going for a Qualifying Workplace Pensions Scheme or the National Employment Savings Trust – or could we use both?
A. The idea is that, if you don’t have a QWPS, you must use NEST. But it is possible to use both and many employers will. For example, a QWPS might be used for existing employees but NEST for new workers, especially in industries such as retail where staff turnover can be high.
If you’re not a large employer with existing in-house pension expertise, it is important to consult a financial advisor and/or scheme providers. But ensure that the person providing advice is fully conversant with the needs of both your workforce and the organisation.
Q. How easy is it to adapt HR and payroll systems to accommodate atuo-enrolment changes?
A. Getting this right is all about business processes and organisations will need to adapt the processes and workflows that are currently in place.
Many employers make the mistake of thinking that their software will automatically handle the changes. But while technology will be instrumental in implementing auto-enrolment, the system will only ever be as good as the processes that surround it and the information that is fed into it.
This means that organisations must define a methodical set of business processes to deal with all of the necessary tasks associated with the scheme.
For instance, it is vital to assess who is eligible to join so that payroll data is accurate and fully up-to-date from the outset. Robust processes and procedures also need to be in place to ensure that the admin work generated by those who opt-out of the scheme is undertaken.
But don’t underestimate the time or resources required to get this right – in an ideal world, you should allow at least 18 months to adequately plan and prepare for this chunk of work.
Q. Are there likely to be any additional costs involved?
A. Yes, the Workplace Pension Reforms are very complex and you may well need some external input. So provide for paying for some kind of consultancy advice as well as any extra resources required to set the scheme up initially.
The contribution you make as an employer is also likely to add to your payroll bill so, again, plan carefully for it. In addition, be mindful that the percentage that an employer is expected to contribute rises from an initial minimum of one to two per cent in October 2017 and then to three per cent from October 2018.
Q. Do employees need to do anything to prepare themselves for auto-enrolment?
A. Relatively little, other than deciding whether they wish to opt-out of the scheme. But before making such a decision, staff should first seek independent financial advice.
Unless they proactively do decide to opt-out, employees will automatically be enrolled onto either a QWPS or NEST and start paying contributions into a pension scheme as soon as the regulations come into force for their employer.
Q. What information should employers share with staff?
A. It is necessary to carry out an effective communications campaign so that the entire workforce fully understands how auto-enrolment will affect them.
At present, awareness of auto-enrolment is low among many employees. As previously recommended and, as when buying any pension product, staff should be advised to consult a financial advisor.
Q. Who has ultimate responsibility for the pension scheme: the employer, the employee or the pension provider?
It is the employer’s responsibility to ensure that a QWPS is in place or that access to NEST is provided, and that the full implications of auto-enrolment are communicated and explained effectively to personnel.
During this process, you must be careful not to impart what could be construed as financial advice, however. Employers should also ensure that the schemes they have in place are fully compliant.
If you currently don’t already have a scheme in place, now is a good time to start discussing with providers which one may work best for you and what level of commission you will have to pay to purchase it.
Q. Will I incur penalties if I don’t hit the deadline?
The Pensions Regulator has stated that fines will be imposed for non-compliance – they are specified in a compliance and enforcement strategy document that was published this summer.
As well as financial penalties, companies failing to adhere to the deadline also run the risk of damaging their reputation and employer brand both among internal stakeholders and externally.
Q. Are there any particular business sectors that will bear the brunt of auto-enrolment more than others?
Sectors that have naturally high staff turnover such as retail, catering and hospitality are likely to suffer most as it will add to the administrative burden already associated with handling new joiners and leavers. But pain will be experienced by any business sector that fails to prepare properly.
Q. Is there any return on investment that can be gleaned from auto-enrolment?
Not in financial terms. But employers that carry it out correctly and do a good job of communicating what it means to their workforces may experience a payback in terms of improved staff loyalty and lower attrition rates. This is because they are helping their employees to fund their own retirement.
Roger Moore is general manager at HR and payroll software supplier, Bond Teamspirit.
2 Responses
Response from Roger Moore, General Manager, Bond Teamspirit
While I agree with the points raised in response to my original article, I would argue that these points are in fact raised within my initial article.
Addressing the response regarding my statement that if you don’t have a QWPS, you must use NEST, the point being made was that if an employer does not select another qualified pension scheme, they are going to have to use NEST. I agree with the point highlighted in regards to shopping around, I am an advocate of employers conducting market research to find the best possible qualifying pension scheme that they feel is most appropriate to their workforce, or within their own financial constraints. If however, they fail to do so, then in all probability they will use NEST because it is a qualifying pension scheme which is readily available to all businesses.
It was never my intention to make the article appear that employees can opt-out ahead of auto-enrolment. The point I raised is that employees do have the opportunity to opt-out, not that this is an option ahead of auto-enrolment. My aim for article was to highlight the importance of employees seeking independent financial advice about whether to opt-out or not. When employees become auto-enrolled in a pension scheme they will receive notification that they have been opted in. From that point they will have thirty days to opt-out. By seeking advice and making an informed decision before they are enrolled employees will be prepared to opt-out during the 30 period should they wish to.
NEST is not the only option
Sorry I struggled with the comment in this article ‘The idea is that, if you don’t have a QWPS, you must use NEST’. There is no compulsion to use NEST at all; it would in fact in my opinion illegal from a competition perspective if it were. NEST is just a pension scheme that has to accept all business it is offered but has in fact some unattractive restrictions that have been placed upon it by the government such as contributions capping, the inability to accept transfers in and a higher charging regime for the first 20 years. So employers must shop around for the best qualifying pension scheme that they feel appropriate to their workforce and their own financial constraints.