Workplace pension planning. 5 things to consider if you're planning for auto-enrolment

Transcription

1 Workplace pension planning 5 things to consider if you're planning for auto-enrolment

2 Introduction The law on workplace pensions has changed; under the Pensions Act 2008, every employer in the UK must put all eligible staff into a pension scheme and contribute towards it. This is called automatic enrolment. It is important for you to understand your role in running a good quality pension scheme. If you employ at least one person you have certain legal duties. It is therefore extremely important that you understand what to do and by when. In this guide I have identified 5 key areas you need to address to ensure compliance with The Pensions Regulator. David Roderick Development Director 2 Workplace pension planning

3 1. Selecting the right pension scheme As an employer YOU are responsible for selecting a suitable pension scheme for your employees. In order to comply with your legal obligations you MUST choose a scheme that meets the QUALIFYING rules and, is prepared to accept your workforce. Not all qualifying pensions are the same and some may contain restrictions or lack suitable options. By April 2019 you will be contributing 8% of an employee s wage into your chosen scheme and for many this is likely to grow to one of the largest assets they have. Those failing to take adequate care in selecting an appropriate scheme for their employees could potentially be walking into a nightmare situation for their business in years to come; the amounts of money involved with workplace pensions could make the PPI scandal look like loose change. Making sure you ve got it right Legal experts recommend that you exercise care, reviewing all available options and recording your attempts at finding the most appropriate solution. My advice is to review the market and compare management charges, scheme restrictions, the type of investment options offered AND make sure you have it all written down to justify your choice of scheme. By seeking further professional advice you can: Ensure you are doing the right thing by your employees Demonstrate due diligence Access better quality pension schemes Possibly receive lower management charges. How will you protect your business should your employees challenge you on your pension scheme choice? 5 things to consider if you're planning for auto-enrolment 3

4 Should I just use NEST? NEST also has a number of restrictions on contributions and transfers which may not be suitable for all, and unlike many other options, it does not have discretionary death benefits. It does provide a suitable choice of pension provider for some, but not necessarily all employees; the charging structure means that some employees MAY be paying higher charges than with other available schemes. NEST is currently free of charge to employers, but there is no certainty it will remain this way and whilst NEST meets the statutory obligation to provide a qualifying scheme you will still have to demonstrate why it was selected as the most appropriate choice and how it compared to the other options available. NEST, often mistakenly called the GOVERNMENT SCHEME, should not simply be considered as your default choice. 4 Workplace pension planning

5 2. Time and resource Many employers significantly underestimate the time and resource required to administer all of their workplace pension duties. There is a strong chance you have never administered a pension scheme before so these ongoing requirements may be completely new to you. It s not a 5 minute job Preparing for and running auto-enrolment every month is not a small task, despite bold claims from various software providers. The actual time taken varies from business to business; a recent independent report conducted by Leeds Business University suggests the average time taken for SMEs to manage auto-enrolment is 4.5 hours per month. Validating your data Although software packages save you time, they also increase the risk to your business as most DO NOT validate your data. Software packages DO NOT sense check the data output, therefore you cannot presume the data you are using is sufficient to be compliant for auto-enrolment. There are two ways of running autoenrolment; the correct way which takes time and application, and the quick way! The time and cost it may take to rectify mistakes made early on could significantly outweigh any short-term savings. You are managing people s retirement funds; their financial future extra care and due diligence must be taken with each piece of data processed. Time versus cost Outsourcing your workplace pension duties is a good option, however if you chose to administer the work in-house each month you must make sure you schedule sufficient time, we also recommend that you use some form of software to help collate everything. Find out what needs to be done before, at and after your staging date with our free auto-enrolment checklist. DOWNLOAD > 5 things to consider if you're planning for auto-enrolment 5

6 3. Payroll misconceptions Many payroll providers and software companies now offer an auto-enrolment solution; however these systems only work if they are set-up correctly. Data quality Payroll systems process the data you input, and unless you validate the data each time you perform an upload, there s no guarantee it will be 100% accurate. We recommend sourcing a payroll provider that will validate and audit your data each month. Figures provided to the parliamentary Work and Pensions Committee in May 2016 by the Chartered Institute of Payroll Professionals suggests that around 25% of employers are incorrectly processing autoenrolment.* Having carried out a significant number of audits, we would suggest this figure is actually closer to 50% and the types of errors we encounter are commonly repeated, all leading to breaches identified by Workplace Pension legislation. In over 14 years of administering workplace pension schemes, whether large or small, it is extremely rare that we receive data that s 100% accurate. My payroll solution will do it all Auto-enrolment is YOUR responsibility and there are very few software companies and payroll bureaus who will take on full responsibility for you. The Pensions Regulator (TPR) released the following statement in February 2016 to re-iterate this message to employers; Advisers (payroll, accountants and financial advisers) are being urged to be clear with their clients about the automatic enrolment services they re providing after our latest automatic enrolment report revealed that employers were fined for failings after mistakenly believing they were being addressed by their advisers. If you are looking to source a payroll solution that will administer auto-enrolment TPR recommends that you obtain an agreement from your chosen provider which details who will be responsible for each task and crucially, areas not covered by their service that will need to be addressed by yourself. Don t let your payroll provider dictate your pension choice How would your employees feel if your choice of pension provider was dictated by your payroll software, rather than one that was most appropriate for their needs? Your choice of pension scheme should dictate your system needs, not the other way round! * 6 Workplace pension planning

7 4. The impact on your business If you are planning on managing your autoenrolment project in-house, you need to consider who will take responsibility and allocate sufficient time, resource and training to ensure it is delivered compliantly and on time. The average time taken to administer autoenrolment is 4.5 hours per month** Support services and software You will also need some form of software to manage your responsibilities. Remember, not all software covers your duties - we recommend comparing providers and assessing who will perform what and at what price. Purchasing a suitable software solution and spending a few hours a month administering your pension scheme may cost more than a fully outsourced option. Risk and liability Automatically enrolling your employees is your main priority, but ensuring you are fully compliant is another MAJOR element of your project. Action from TPR could lead to significant penalties to address any historic issues. We recommend investing suitable amounts of time each month to ensure compliance and minimise the risk of any actions from The Regulator. The greatest risk you could face as an employer is from potential claims in the future from employees who believe they were disadvantaged by the choices you made or allege that you failed to follow the correct process. Costs Not all pension scheme providers charge in the same way. You MUST make sure you re fully aware of all the costs associated with the set-up and running of your pension scheme as auto-enrolment may cost you more than you initially realise. ** Automatic enrolment: The payroll perspective. Dr Iain Clacher. September things to consider if you're planning for auto-enrolment 7

8 5. Your core duties checklist And finally, here s my list of the five core duties your business will need to undertake to comply with its Workplace Pension duties: Core tasks 1. Select an appropriate pension scheme. 2. Categorise your workers into segments based upon their eligibility remember it s not just those on PAYE that need to be considered. 3. Once you reach your staging date, and for every pay reference period thereafter, you need to assess your workers to calculate who needs to be enrolled and the contributions payable. 4. Communicate to your employees and update any changes. 5. Maintain full and accurate records, not only is this a statutory duty but it is the only defence against any future claims.... and don t forget to complete your statutory declarations. 8 Workplace pension planning

9 5 things to consider if you're planning for auto-enrolment 9

10 For further information contact our business development team: Johnson Fleming Limited Fleming House Bromsgrove Enterprise Park Bromsgrove B60 Johnson Fleming Limited is authorised and regulated by the Financial Conduct Authority. Registered office: Fleming House, Bromsgrove Enterprise Park, Bromsgrove B60 3AL. Registered in England and Wales, registered number The Financial Conduct Authority does not regulate some forms of auto-enrolment. JF300817