The largest employers have all passed their staging dates and it looks like the AE implementation process has gone fairly smoothly. The true test comes this year, when smaller companies – businesses with 50 to 250 staff – reach their staging date.
But of course, you know that and you’re on track regarding your obligations. Or are you? If you aren’t, you’d better get moving fast: in our experience, preparing for AE in less than six months is cutting it very fine.
Of course, if all you want to do is ‘tick the box’, the Government’s ‘National Employment Savings Trust’ (NEST) is available, but even compliance with this bog standard scheme will take time. And don’t expect much help from NEST!
There’s another potential minefield for smaller companies – the pensions industry is predicting a capacity crunch in 2014. There are around 26,000 companies due to start AE in the four-month period from April to July this year, and 55% of these have no scheme in place.
Some pension providers have already made deals to provide AE capacity to a select few intermediary partners, so don’t waste time in seeking advice. We’re looking at over 14,000 new schemes being established – quite apart from those whose existing schemes cannot accommodate AE. There’s no doubt that some of these schemes will end up in NEST, whether they want to or not.
Let’s assume you’re suitably enlightened; an employer who’s genuinely committed to ensuring that your staff secure the best outcome from the AE programme. Here are a few pointers:
Prepare early – There are two key issues to consider – the level of contributions and who qualifies.
Staging date – By this date (check the Pensions Regulator site to confirm your AE D-Day) you have to decide your policy on contributions. You’ve got quite a few options. For example, contributions calculated on Basic Pay (which excludes commission, bonus, overtime and shift allowances) will total 9%, with at least 4% from the employer. If 100% of pay is pensionable, then it’s a minimum of 3% employer/7% total. So it’s worth exploring the different scenarios before you commit to your rules.
Who qualifies? – This isn’t a one-off ‘fire-and-forget’ exercise. You’ll need to do the assessment every pay period/month and collect the premiums each month from your staff. This means that your Payroll people (whether internal or outsourced) are fundamental to the successful management of AE. They’ll need to know the contribution rules you’ve decided on and the criteria for scheme qualification.
Choosing the appropriate scheme – There are many options and you don’t have to go for just one scheme: you could select two or more schemes suitable for different grades of staff. Clearly the thing to do – and you’d expect me to say this given my calling! – is to seek advice from one of the many firms advising companies on AE implementation.
But isn’t one workplace pension scheme much like another? No. The Pensions Regulator sets out the minimum requirements for a scheme to be a QWPS (Qualifying Workplace Pension Scheme). Even so, there are substantial variations on what’s on offer in terms of the range of investments available, levels of charges and customer service.
And then there’s the choice of provider: they may offer the right package, but what about the quality of the scheme’s day-to-day management? In short, you want to be assured about your provider’s level of efficiency in receiving your employee data and monies, and you don’t want to end up chasing them for refunds.
Is your current scheme AE friendly? – You may already have a scheme in place which you plan to use for AE-related entrants. But it’s not that simple: many scheme providers – some of them handling schemes for companies with thousands of employees – have already signalled that they won’t accommodate AE pension holders within an existing scheme. So don’t leave it too late to discover this potential obstacle.
AE is here for keeps; it’s not some politically-inspired initiative which will be swept away with a change of Government. So if you have to live with it, why not embrace it? AE could be your chance to re-engage with your employees by demonstrating your commitment to their financial wellbeing.
If you leave it too late to do things properly, you’ll be stuck with a bargain basement option. Yes, it might be cheaper in terms of set-up costs and management services, but surely you want your employees to know – and appreciate – that you want the best for them?
Derek Miles is the MD of Aspira
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