With automatic enrolment fast approaching, many employers are starting to understand the huge impact it could have on their business. First of all, they will have to find the money from somewhere to pay pension contributions for their workers. Employer pension contributions are of course mandatory with automatic enrolment so there isn't a lot that can be done by advisers to help employers with the pounds and pence cost (with the possible exception of salary exchange).
Next, employers will have to work out how the automatic enrolment rules and processes interact with their business. Unfortunately there literally hundreds of pages of legislation and guidance that set out the automatic enrolment rules. The penalties if employers get it wrong can be substantial and employers do not want to spend hours and hours sorting out pensions when they should be running their business.
But there is absolutely no point in promising to deliver a system to employers that will do all the automatic enrolment duties from their staging date unless automatic enrolment is firmly integrated into an employer's business well in advance of that date. And this is where advisers can start to add real value.
In general, there will be two stages involved in getting an employer ready for automatic enrolment – design and implementation.
Designing a solution
The design stage involves getting information from the employer to establish when their staging date is, what type of scheme they have in place just now, and how many workers they have. This information can then be used to establish a timeline and a high level estimated total contribution cost, based on the different categories of worker. This can take into account existing contributions and should help the employer decide whether to use the qualifying earnings basis, or certification, for their automatic enrolment scheme.
Advisers can then start to model different options to see how each approach would affect all or different parts of the workforce. For example the employer might want to keep their existing scheme going for any existing pension scheme members, but introduce a new category at a different contribution level for new entrants. This modelling should concentrate not just on pounds and pence cost, but also on the administrative impact of adopting different approaches to scheme design. For example, paying the absolute minimum contribution requirement may cost less in pounds and pence terms. But it may take more time for the employer to process, because of the tricky definition of 'qualifying earnings', especially if earnings fluctuate from pay day to pay day.
Just how early advisers should start helping employers with designing their automatic enrolment scheme will largely depend on the size of the employer and their attitude towards providing a pension scheme for their workers. But it shouldn't be left too late. Gathering the data required and designing a solution will take some time. Leaving it too late could mean additional costs that employers can ill afford.
Once the overall design has been agreed, the agreed arrangements need to be set up properly within the employer's business. This is arguably the most complicated and most important part of the process. A good example of this is postponement, which allows employers to defer the automatic enrolment date for up to three months. Employers might want to use postponement if they want to align key automatic enrolment dates with key payroll dates. For example, if a new worker is employed half way through a pay period, this might mean that payroll will have to work out pension contributions based on a part month's salary. And some payroll systems might not be able to cope. Postponement can allow employers to make sure that part month calculations will not be required. Some employers may want to minimise the risk of having to make refunds to workers who opt out. Again, setting the postponement date to align with key payroll dates can help achieve this.
There are many other ways that postponement can be used. Every employer is different and there are many more automatic rules that have to be considered. That's why it is so important to consider the employer's existing processes and systems before setting up an automatic enrolment scheme. It doesn't mean giving employers a list of dates to tell them what all the automatic enrolment rules are. It means sitting down with their payroll, HR and administration people to talk through how their own processes work in practice, and how key automatic enrolment dates and timescales can then be slotted in. Many pension providers will provide an implementation manager to work through this sort of detail with the employer and their adviser.
Walking through the design and implementation stages means that these key dates and processes can be integrated into a tailored automatic enrolment solution. That can give employers and advisers peace of mind that the automatic enrolment scheme is being run in the most efficient, cost effective way possible.