Pensions automatic enrolment is on its way for SMEs – whether you are ready or not!
The concept, put forward as a solution to the dismal retirement situation many people are facing, came into force on 1st October 2012 for large businesses. Although there are plans afoot to simplify the legislation surrounding auto enrolment, there’s no getting away from the fact that now is the time for SMEs to be preparing for the challenges ahead.
When the law comes into effect for your business, you’ll be required to:
i. Make a qualifying scheme available for employees;
ii. Automatically enrol all qualifying employees into the scheme;
iii. Contribute to the scheme;
iv. Inform all qualifying employees that they have been enrolled, as well as pointing out their right to leave if they don’t want to remain a member of the scheme; and
v. Adhere to the Pensions Regulator requirements to register and administer the scheme.
In order to get this process right, employers need to be putting the right payroll, HR, senior management and third party pension provider ducks in a row right now. Some industry experts have suggested that to get this absolutely right, employers should be preparing themselves a good 12 months in advance. If this is the case, there are already many companies behind schedule!
So, with this in mind, what should you be putting in place right now, to make sure you’re ready when D-day comes along?
Here are some of the things you need to be thinking about implementing, planning or defining:
- Prior to your staging date, you should be carrying out an assessment of your workforce to establish whether or not your data is accurate across the board.
- Once you know your staging date, or ideally before, you should be identifying a project team to take control of the management of auto-enrolment.
- Your project team should take control of establishing the requirements of the scheme as well as identifying the new scheme (unless you are retaining an existing scheme), the scheme systems and employee communications. Amongst other things they, and the ongoing scheme administrators should be looking at:
a. How the scheme will be administered, with preference being given to maximum automation.
b. The documentation of procedures and ongoing record keeping.
c. The relevant pay reference period.
d. Your employees qualifying earnings and pensionable salary components straight from the source.
e. The scheme opt-in and opt out procedures.
f. The treatment of refunds of contributions.
g. The re-enrolment process.
h. The communications required pre, during and post auto-enrolment.
i. The procedure for employees who operate under flexible benefit arrangements, such as salary sacrifice and those on secondment or parental leave.
j. How contributions will be calculated and reconciled.
k. The contribution payment procedures and timing.
l. The development of an appropriate reporting structure for the management team in charge of governing the scheme.
m. The method of identifying inaccurate or unexpected contributions or fluctuations in earnings in both the payroll and the pension provider’s systems.
Although auto-enrolment may seem like a huge task right now, there’s no getting away from the fact that it’s something that even the smallest of business is going to have to manage once the time comes. With this in mind, it’s best to be prepared. If you’re struggling to go it alone, don’t hesitate to get in touch with our payroll team so we can help pave the way.