The drive to implement pension auto enrolment by the government has been in place for a little while. The inititative was lead because private pension saving declined in the UK, probably impacted by the global recession leading to a drop in people saving for their old age as well as undersaving.
The Pensions Regulator has issued 32,000 letters to organisations with staging dates from January 2013 to September 2014. From January 2014 small to medium organisations (SMEs) will be affected and will need to commence pension auto enrolment in accordance with their staging date.
The Pensions Regulator has recently completed an analysis on progress with UK employers and provided a commentary on how they are coping with the process so far.
Most employers are now aware of their obligations in respect of pension auto enrolment in that they have to automatically enrol UK workers, provide a qualifying pension scheme and make contributions however detailed knowledge of the finer points of implementation are lacking. The awareness of employers with their obligations has grown more and more perhaps due to the TV adverts promoted by the government where celebrities such as Nick Hewer, Karen Brady and Theo Paphitis are seen saying "I'm in". Awareness has grown more with micro and small businesses but percentage wise is very low compared to awareness in large organisations who seem to be very aware of their staging date. Larger organisations are also more likely to have a more detailed knowledge of changes in pension law compared to smaller organisations.
Awareness of pension law changes has increased with intermediaries such as accountants and book keepers particularly if they advise small businesses. Awareness with pensions consultants, pensions administrators and IFAs who advise large organisations close to their staging date is very high.
Over 3/4 of larger employers think that pension auto enrolment is a good idea in principle. Whilst many large organisations feel they will be able to cope with the administrative burden of pension auto enrolment only 48% of micro businesses have indicated confidence in being able to do so.
Most large organisations said they would not leave things to the last minute to implement pension auto enrolment compared to 40% of small and 66% of micro businesses who said they would.
50% of large organisations and 65% of medium organisations felt it would be easy to cope with the changes compared to 57% of small and 42% of micro businesses. Large employers have tended to be the most prepared for the changes, with most having started some form of preparation, and with more now in the implementation stage than in spring 2012. Most large employers were also confident that their organisation would have done everything it needed to by the deadline. Only 18% of micro employers have begun preparation and lack confidence that everything will be done by their deadline.
The main concern about pension auto enrolment for SMEs is the cost of implementation. Micro employers are also more concerned about the administration and communication to workers.
Many large organisations have already consulted with an external advisor to seek advice whereas many SMES plan to gain external support in future. Many pension consultants are already getting actively involved in providing technical advice to their clients, but it is advice rather than hands on support with the expectation that their clients will undertake many of the admin activities themselves. Many book keepers and accountants are undecided on the type of support they will provide to their clients. Potentially many small and micro businesses may be lacking in the support available to them.
Many employers felt the penalty for non-compliance would be a fixed penalty or fine. The Pensions Regulator has already opened 89 investigations into non-compliance with large organisations who have passed their staging date and took no action. The investigations have focused on employer readiness and helping employers become compliant. No one has yet been fined for not complying however, this may change in 2014 when the huge number of SMEs will be affected by the change in pension law.
To conclude it would seem that although larger organisations seem to have everything in hand, potentially SMEs may struggle to cope with the necessary burden and should seek help well in advance of their staging date if they are unsure of what to do so they avoid any investigation by the Pension Regulator for non-compliance.
For more information on the Pension Regulator's analysis: http://www.thepensionsregulator.gov.uk/docs/automatic-enrolment-commentary-analysis-2013.pdf