For large employers, staging for auto-enrollment has already happened but for smaller businesses, the work is just beginning. The Pensions Regulator forecasts that, between April and September 2014, 27,400 organisations will have staged for auto-enrollment, compared with the 5,431 that did so between July 2012 and December 2013.
To put that into greater perspective, Standard Life, says the industry has been setting up defined contribution schemes at an average rate of one every three hours. That has increased to one every six minutes this Summer 2014. And will increase further as more small businesses approach their enrollment date.
Although it remains unclear whether these increases in volumes will create a ‘capacity crunch’, where the system will struggle to cope with the volume of demand, one thing is clear: we are entering uncharted waters.
Naturally SMEs tend to have less awareness of auto-enrollment issues than larger corporates. Many don’t have an HR department, and most have not previously offered any kind of pension scheme.
Early preparation is key, but there’s another issue smaller organisations must consider: there is no guarantee the first pension provider they approach will take them on, even if they have an existing pension scheme with them.
“With traditional providers “cherry-picking” new schemes a number have indicated they will be monitoring the market and may be forced to close their doors to auto-enrollment later this year or next year if they don’t have the capacity.”
There’s also a risk that advisers could start declining business if they become over-stretched, which could cause a big problem for SMEs. Although it can be possible to take suitable advice from an accountant or payroll provider, independent financial advisers (IFAs) or employee benefit consultants tend to be best placed to help. The key is to establish that they already have experience in handling auto-enrollment cases.
We believe that businesses should start to prepare at least six to 12 months before their staging dates. Being able to set up a scheme quickly online is all very well but this was never the most time-consuming part of the process. Obtaining and cleansing employee data has historically taken far longer.
Employers also still have to carry out all the required communications processes, consider all the legal implications and ensure that their auto-enrollment arrangements dovetail with payroll.
“Clients should realise that they may need to make changes to payroll they might not have anticipated.”
Businesses with between 50 and 249 employees can be fined £2,500 a day for failing to comply with auto-enrolment requirements.
Morrell Middleton has teamed up with Ardent Financial advisers to have a relaxing hour chatting about the problems faced by employers in implementing this legislation, the pitfalls and the fines!
Book online HERE to reserve your place. The event starts at 11am for a coffee with the talk timed to last from 11.30am to 12.15pm. Questions and discussions will take place after if you want a more personal response, and a buffer lunch will be provided by our friends at Hotel Noir, who are hosting the event at 3-5 Clifton, York.
Any questions please email firstname.lastname@example.org or telephone 01904 691141.