Employers approaching advisers for guidance on implementing an auto-enrolment solution should be a perfectly straightforward equation.
Employers need help – and, importantly, increasingly know they need help – and advisers are ideally positioned to provide that help.
With more than one million employers still to meet their staging date, logic would dictate that advisers shouldn’t be able to open their office door in the morning because of the flood of enquiries pouring in from concerned employers.
However, the majority of advisers and accountants I’m talking to daily tell me that most employers are slow to put plans in place.
‘Paralysis through analysis’
So, is this just inertia? Paralysis through analysis, in the face of the abundance of information they’re receiving about auto-enrolment from all directions as their staging date gets closer? Or just hoping that it will go away if they don’t think about it?
Whatever the reason, this article includes the six ‘magic’ questions that I believe advisers should pose to employers to make them reconsider their current approach to auto-enrolment and really get them to engage with this process.
Six magic questions
1. Are you aware that auto-enrolment isn’t ‘automatic’ for employers? There’s a worryingly common misconception among employers that the ‘automatic’ part of auto-enrolment means that they don’t need to take any action.
This is far from the case; in fact, it’s estimated that auto-enrolment could take as much as 103 working days’ effort to put in place, and then more work every time employers pay their staff. Helping an employer to understand that if anything’s automated for them it’s the fines from The Pensions Regulator can often be the catalyst they need to start working with an adviser.
2. Have you already left it too late? The Pensions Regulator recommends 12 months is the optimum amount of time needed to put an auto-enrolment scheme in place.
However, research from NEST shows that 20% of firms that staged in 2014 took 16 months or more to get all of their ‘ducks in a row’. The dangers for employers of missing staging dates are well publicised; large fines and, potentially, prosecution. Imagine discovering you’re one of the 20% when you have only days instead of months to get things right?
3. Is your pension fit-for-purpose and available to all employees? Employers are getting caught out when assuming an existing pension scheme qualifies for use in auto-enrolment and that their provider will accept auto-enrolled employees.
The 0.75% charge cap and demographic of auto-enrol employees have driven many providers to introduce employer charges, or not accept auto-enrolled employees at all.
Employers new to pensions may well ask their accountant/payroll bureau which provider to use, and are finding many understandably reluctant to take the step into pensions advice. Advisers need to make employers understand the right approach for their needs, and that this might not be as simple as they first anticipated.
4. Are you aware that not only staff on the payroll are affected by auto-enrolment? The definition of ‘workers’ isn’t limited to your payroll and permanent staff.
For example, well-paid contractors invoice for payment and if they’re working at the employer’s offices, using the employer’s equipment to perform key duties, they would be included in the assessed workforce. If an employer gets this wrong, the regulator can pursue them for the missed contributions; imagine if their mistake was only discovered years down the line – there is no expiry date on their obligations for reparation.
5. Do you know that not all payroll systems are compatible with all pension providers? I feel this is one of the areas of which employers are most unaware and, sadly, it can often trip up those who have prepared adequately in every other way.
Employers need to start off with a simple question; can they get out of their payroll system all the data they need for their scheme? For example, do they even have the latest home address for all of the workers affected? Have they budgeted the time and cost to get their data and processes right?
6. Has the idea of postponement lulled you into a false sense of security? Postponement doesn’t move an employer’s staging date, and they have duties from day one.
If the employer doesn’t deliver personalised communications to each member of their workforce within six weeks of the staging date, they will lose the right to postpone, costing them up to three months’ additional contributions.
If they miss staging by more than three months, then they’re liable to make up all outstanding contributions until they’ve successfully set-up a scheme, back-dated assessments, communicated to staff and enrolled appropriately. Any employee can opt-in to the scheme from the staging date, and the employer will need to be ready to enrol them.
To put this into perspective, a 30 employee company on average earnings losing postponement could cost c£1,500 in additional employer contributions. Miss staging by three months and the cost to the employer would be over £3,000.
That’s before any fines from the regulator. If employers miss their staging dates or don’t implement a scheme properly, it can be costly to them in terms of money, time and hassle. The government has effectively put a price-tag on failure.[/su_note]
The six ‘magic’ questions above can prove very valuable when trying to help employers understand the importance of engaging with auto-enrolment; and the ramifications of failing to do so.
Tom Nall is director of workplace solutions at SimplyBiz