Managing Your Cash Flow
8 auto-enrolment pension lessons you can learn from the big boys
5 min read
28 November 2013
Auto-enrolment has caused the biggest pensions shake-up in decades. It's become the most talked about, most anticipated change in pension legislation that employers have ever contended with. And for the first time ever, every employee in the UK will be saving for retirement. But despite all the build-up, many large companies - with all their specialist teams - still discover auto-enrolment surprises.
Between now and 2018 every business has to crack on with auto-enrolment (AE). Companies with less than 250 employees are the next group to run across the pension minister’s finishing line, so know the dates that affect you. You could be one of the 30,000 who will be running your pension race between May and July 2014.
Don’t learn your lessons the hard way; FDs and HRDs of FTSE250 companies would tell you these vital tips.
1. Avoid your financial brick wall
Have frank discussions with HR and finance, with payroll and your pension adviser. Everyone needs to sing from a trusty hymn sheet. You do not want a day where you hit a brick wall, explaining to investors or board execs about surprise financial impacts.
2. There is no switch to flick for AE
Too many big businesses under-estimated AE complexities and didn’t foresee tight timescales. Give yourself enough time – at least four months.
3. Go monthly
Weekly payroll is widespread in big and small businesses. The amount of work required to implement weekly pay into AE is heavier. Maybe it’s time to switch to monthly payments.
4. Get specialist help
Pensions minister Steve Webb said employers didn’t need additional help and support in ‘staging’ AE. He was wrong. There are only a handful of employers in the UK who has the resources to go through all the legislation. An adviser is in a better position to know what to do and when: when and how to enrol on a qualifying pension scheme, which statutory deadlines apply, what you can and can’t say in your communications to employees, when to get the system up and running, how much time to leave and so on.
5. Don’t let data and technology be your downfall
Have upfront conversations with your providers about technology as soon as possible. Find out costs, restrictions and whether all your workforce is eligible for the scheme. Understand the pension scheme arrangements, how much work someone in your company will need to do so the business is AE compliant, whether technology handles both statutory and launch communications, and so forth. As a word of warning, because more providers are starting to charge a lot of money, you need to make sure the options are right for your needs.
6. It’s the way I tell ’em
Big businesses have internal communications processes. They used them. Alot. Comms are crucial if all employees are to understand AE. You don’t want them surprised when they see deductions on their payslip, and equally, it’s better for their retirement if they save more. Employees need to be aware of what AE is, what it involves and how it affects them. Assuming they’ll be given the opportunity to opt-out at a later date just won’t suffice.
7. Identify the danger spots
There is a lot of complex legal stuff – it’s not just about implementing AE and getting systems up and running. Compliance and legislation are watchwords. Plain and simple, you need to be aware of which employees can legally auto-enrol and which can’t. Too many bigger businesses nearly had their fingers burnt by assuming they could apply a blanket pension arrangement across all workers. Doing this means employers could fall foul of other pension legislations, such as illegally deducting pension contributions from employees who are not actually eligible.
8. Stay out of the dock
There are fixed fines and punitive daily additional fines for getting it wrong. Don’t go there.
So, at the end of the day, new technology can guide SME employers through the complexities, making it simpler and quicker. These rules here? They still apply. Don’t think they won’t.
Clare Abrahams is the head of auto-enrolment at Lorica Employee Benefits