I’ll let you off reading this briefing if you press the People Get Ready link which gets you to the Reverend Al Green and friends (no ads) – it will make you cry!
Still with me ? Enjoy the vid? Oh I see, you want to hear about how to get ready for auto-enrolment. Well then…
AUTO ENROLMENT IS HERE!
But the early stagers have deep pockets. Lloyds reported to the FT they had spent in excess of £1m staging.
If “wave one” so far looks a success, what about waves 2 and 3 and what can the employers preparing to stage in late 2013 and onwards learn?
This briefing note outlines what First Actuarial sees as being the 5 key stages to complying with the new regulations, making sure that your company is ready on time.
In a recent briefing called NEST claimed that most companies they’d surveyed were under-estimating the work needed to be auto-enrolment ready and over-estimating the amount of help available to them “cometh their staging”.
This blog is here to help you get ready. I’ve broken the tasks down into five stages.
It’s drawn from our and our “early staging” clients’ experience of what really matters!
Stage one – know your workforce
Assessing your workforce means segmenting them into different types. eligibles, entitled and non-eligibles. That’s the easy bit.
The hard bit’s working out who works for you but isn’t on your payroll – typically your contractors – who under the new terminology are your “workers”. Opinion on who does and not quality for one of the segments is hardening but you will almost certainly need to take advice on this.
Once you’ve done the assessment once, you need a process to do it again and again, in fact every pay reference period.
So assessing who works for you can be difficult and laborious so you’re best off getting a machine to do this work. Ask your payroll if they offer an assessment tool , if they don’t you may be able to get one from your pension provider. If you can’t get one there then you may have to hire the machine from a specialist “middleware” provider.
The assessment requirements can be quite complex, and so it is absolutely vital that you know your workforce, and understand where your responsibilities lie. You will need to determine who will undertake the assessment and how it will be done. Without this first stage, you will find it harder to understand the scale of the task at hand.
Stage two – understand the timing issues
Your staging date is decided by the size of your largest PAYE scheme. For many companies, this will be fairly easy to assess, but for those with complex structures, there can be more than one staging date. Your staging date will be confirmed by The Pensions Regulator in writing. If you are staging in 2013 or early 2014 you should have told the date and be on the way to getting yourself ready.
The staging date can be brought forward, but not deferred. There is some flexibility to align multiple staging dates or to stage at an easy time for the business.
While you can’t push back your staging, you can postpone deducting and paying auto-enrolled contributions. This is known as postponement, Postponement can be used to align the contributions of different staging dates, or where there’s high staff turnover, defer the assessment of short service workers who are likely to leave.
For companies who want to enrol using a “qualifying” defined benefit scheme, there’s another option to delay auto-enrolment until October 2017. This is known as the “hybrid transition period”.
Early staging, postponement and the hybrid transition period are supposed to provide employers with sufficient flexibility to implement auto-enrolment without serious business disruption
So far, we’ve found that auto-enrolment projects take 12 to 18 months to complete, so it’s important to work back from you allocated staging date, and start planning early.
You cannot start preparing for auto-enrolment too early – Get a proper project plan in place with the help of a pensions expert such as a First Actuarial Consultant. Time is not on your side
Stage three – scheme design and suitability
Getting the design of scheme right is crucial. You need to think about the costs of the various contribution models you can use for auto-enrolment, whether any cannot be managed by your provider or your payroll, whether you want to use salary sacrifice and whether you want to phase contributions in (if you are an early stager)
We can help you model the costs of each structure and can include likely opt-out rates. We can also advise you to stay within certain guidelines that will keep you on the right side of the Regulator. 10% mandatory employee contributions may be what is needed to fund a solvent retirement but it’s likely to be considered by the Regulator “an inducement to opt-out!”. And it’s not just your yet to be enrolled staff that you need to consider, you’ve got to make sure that staff already in a pension plan are getting at least a minimum contribution.
Then there’s the decision about what scheme or schemes to use to enrol your staff. You may have existing plans but do they qualify to be certified for auto-enrolment and even if they do, are they likely to meet the Government’s new “Quality Test”? You may decide this is a good time to look at other options you can use, including the new supertrusts like NEST and NOW. The price members pay to be in these plans has fallen in recent years and you may be pleasantly surprised to find you and your staff can get better value for money than in years gone by.
Your pension provider needs to be able to provide the statutory communications that go to your staff, manage the opt-out process and work with your payroll and HR departments to minimise business disruption. Even if you like your existing provider, you may be forced to bring in a new provider, if only to deal with those not already enrolled
While you shouldn’t panic buy, we strongly recommend you do not leave making changes to your pension provider. It may well be that you also need to make changes to your payroll and HR software, retrain your staff or even buy new middleware to ensure that your pension provider can operate with you compliantly.
Stage four – communications, HR and payroll readiness
Whatever you do that touches your staff’s pay and benefits needs to be communicated. Some communications are statutory (and have template letters which give little scope for tailoring), some communications can be tailored to meet your company and staff’s needs.
Many employers want to provide their own communications to their workforce – to set the scene, raise awareness and for financial education provide guidance about contributions, defaults and so on. All this maximizes the “employee value proposition” as HR experts now call it!
Designing a communications strategy and establishing a delivery plan that complies , engages and helps achieve the company’s strategic goals is a difficult business. You may well want to speak with us about what has worked for other companies and the options available to you.
Some payrolls can deliver these messages while some organisations may be better served using an existing HR system. In some cases, communications may come from a specialist source, possibly the middleware provider.
Getting a communications plan in place is critical to the success of staging , especially in the eyes of your staff. Creating a communications plan which deals with everything from data management to who prints and delivers the letters, is a critical part of becoming ready for auto-enrolment.
Stage five – record keeping and other considerations
It’s not enough just to compliantly manage the contributions from those enrolled and chosing to join your plans. Nor is it enough to manage the opt-out process and make sure the communications are properly distributed. Nor is it enough to properly assess each pay reference period and deal with tricky items like re-assessment
All of this needs to be recorded and to be available for inspection should a “regulatory” inspector call.
These records need ordinarily be maintained for six years, with opting out records being kept for four.
Your administration and record keeping processes need to be sufficiently robust to ensure that other aspects of the auto-enrolment duties are able to work correctly.
The final lap in the five stage process takes you round all the processes you have established in the previous four and makes you sure that not only is enrolment done, but it is seen to be done.
How First Actuarial can help
We don’t think that getting you and your company ready for auto-enrolment should be daunting. We’ve been round the loop a few times already and as each new wave of clients manages their way through the five stages, we refine our advice to make it easier.
We are keenly aware that both in terms and fees, contributions and business disruption, auto-enrolment has the capacity to be very expensive. By following our well-established path, you can keep fees to a minimum, avoid risk and maximise the value of your contributions to your staff.
Still there? Ok – as an extra treat- here is George Kirrin’s favoured version of People Get Ready – Barbara Dickson style -aye!
It’s a wrap trap – but who’s been caught? (henrytapper.com)
- Who’ll pay the price for an auto-enrolment train crash? (henrytapper.com)
- NEST Insight; what the 11m+ “unpensioned” think. (henrytapper.com)
- “Comply or explain” – will “bottom up” regulation work for pensions? (henrytapper.com)
- What would you pay to get your firm a proper pension? (henrytapper.com)
- Never mind the width – feel the quality! (henrytapper.com)
- Auto-enrolment – stay cool – hang loose! (henrytapper.com)
- 2 cheers for the Regulator’s new clothes (henrytapper.com)
- OFT rattles pension consultant’s cage -shock! (henrytapper.com)
- A splendid race to the bottom! (henrytapper.com)