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Auto-enrolment: The questions SMEs should be asking to find the most relevant pensions provider

Beginning in October 2012 with the largest employers, new legislation in the United Kingdom made it a legal requirement for employers to automatically enrol employees into a workplace pension – and make contributions to it. But just how does each one go about finding a provider that fits the bill?
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Don’t miss our comprehensive auto-enrolment digital guide – featuring the stories of four SMEs

We’ve made auto-enrolment so much of a focus that a specific mini online hub has been created – populated by content that will help you, as a business owner, through the process of becoming compliant.

The centre piece of this is our new digital guide, packed full of fellow business owners discussing their own unique approach to auto-enrolment. From Martha Lane Fox’s Lucky voice through husband and wife operation Independence Pay, each have shared stories with Real Business.

But what about the actual process of selecting the right pensions provider, what questions should you be asking yourselves? That’s where this feature can help out.

The initial focus was on larger UK employers, but by 2018 all employers – even those employing just one person – will have to comply.

Businesses are set a deadline by which auto-enrolment duties start – this is known as a staging date. The Pensions Regulator will write to an employer at least 12 months before the deadline to let them know their individual date or employers can look on the staging date tool on The Pension Regulator’s website.

As such, planning ahead of that staging date is vital and one of the key considerations is how to choose a relevant pension provider. And here there are a plethora of schemes to choose from.

The National Employment Savings Trust, or NEST, is a scheme set up by the government and must accept all employers that apply to use it for auto-enrolment. It does not have a set-up charge.

There are also independently-reviewed schemes where providers have had schemes reviewed to show they meet a good standard of administration. This is known as the “master trust assurance framework”.

Other schemes are regulated by the Financial Conduct Authority (FCA), such as the Aviva Company Pension, or those listed by industry bodies such as the Association of British Insurers and the Pensions and Lifetime Savings Association.

Of course, an employer may already have a pension scheme put in place for staff – such as a stakeholder pension or an occupational defined benefit or defined contribution pension scheme. The Pensions Regulator says that if a company wants to continue using this existing scheme, it needs to ask the provider if it meets the auto-enrolment requirements. If it is found that the employer can’t use the scheme, then a new one must be chosen.

The rules the scheme needs to meet include that it doesn’t require staff to do anything to join or to choose their own investments.

The main things to consider when choosing the best provider for your business should factor in whether the scheme can be used for auto-enrolment and will accept all staff needing to be put into a scheme.

Employers should also consider whether the scheme is suitable for lower-paid staff. If an employer uses a scheme that runs on “net pay arrangements”, then staff who earn less than £11,000 a year can’t get tax relief from the government. But if they choose a scheme that operates “relief at source”, then all low paid staff will be able to have tax relief.

If a business uses payroll software then it needs to ask whether the scheme will work with it and whether the scheme will write to staff on its behalf to tell them about auto-enrolment. Some schemes may also only accept employers with a minimum number of staff, or which has staff that earn a certain amount.

Cost is another crucial consideration, as some schemes will have different charges for different members and charge the employer for setting up the scheme and ongoing administration. It is important to remember that different providers may charge in different ways, such as an ongoing monthly charge or with a one-off up-front charge for the life of the pension scheme. Some schemes may also include an exit fee for employers who change pension schemes.

The government is advising employers to “ask the provider what they will charge you based on your workforce and decide which charging method is best for you”. It added: “You should also ask the provider what charges the scheme members will pay.”

A senior figure at a large pensions provider, told us that, to date, the vast majority of employers have chosen the master trust route. “Employers are recognising that good quality schemes should be able to demonstrate their quality through third party assessments such as ICAEW master trust assurance framework or Pension Quality Mark.

These are designed to highlight schemes that are managed to a high standard,” he stated.

He urged all employers to take time when considering the best options available. “The decision you make will have long-lasting consequences not only for your workforce but also for your business and shouldn’t be rushed,” he commented. “Auto-enrolment is not at the top of an SMEs owner’s agenda. If you don’t feel confident making a decision on a pension provider alone, think about getting some help from a financial adviser or perhaps speak to your accountant or payroll provider.”

The pensions expert believes SMEs, in particular, have to be careful when choosing a provider as not all will be open to working with smaller employers.

However, if one is offering schemes to SMEs then he revealed one of the key considerations is to discover to what extent the provider will support an employer with regard to implementation and the ongoing process of auto-enrolment.

“Employers should consider providers which will help them manage the scheme as new entrants join or keep them informed about changes and amendments to the legislation to ensure they are always compliant,” he concluded.

If, as the owner/manager of an SME, you’d like further guidance on auto-enrolment then visit The Pensions Regulator website, where you’ll also be able to discover your personal situation through its Duties Checker system.

Don’t miss our comprehensive auto-enrolment digital guide – featuring the stories of four SMEs

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