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Phase 2 for pensions

As the second phase of auto-enrolment begins, many employers are still in the dark about how to plan ahead, which can have costly consequences. Warns Phil Annand, Corporate Benefits Adviser, Central Investment.

One year has passed since the government launched auto-enrolment, a landmark move to automatically enrol employees into a Qualifying Workplace Pension Scheme (QWPS). The country’s largest employers have passed their staging dates, but the deadline is approaching for SMEs, revealing the need for preparation as their dates approach. So far, there have been few problems with initial auto-enrolment implementation, and findings have shown that a low rate of employees have been opting out of pension scheme membership. However, one of the main lessons to be learned from the first phase of auto-enrolment is that planning is essential and that smaller companies and SMEs will need to prepare well in advance to ensure that they are ready when their date comes.

Recent research shows that up to 90 percent of small business owners have done no forward planning for auto-enrolment. As time ticks down, these employers will need to focus their resources on proper planning or incur consequences, including heavy fines. In the first half of next year, around 38,000 employers are expected to introduce auto-enrolment, which will mostly include SMEs. Employers with 150 to 240 members of staff will have a deadline of 1 May as a staging date; companies with 90 to 149 members of staff have until 1 June and smaller companies with between 50 and 89 members of staff will have to stage by 1 July.

While 12 to 18 months of preparation is ideal, companies will need at least six months to ensure they have everything in place by their staging date, meaning that the time for SMEs to begin planning is now. One of the biggest obstacles for late adapters is partnering with an insurance provider. Many mainstream insurance companies are struggling with the capacity of enquiries they are getting and will have to begin turning away employers that leave it too late. Aside from looking for pension scheme providers, employers need to ensure that all of their internal operations are compliant with auto-enrolment regulations. A recent report by the Centre for Economic Business Research (CEBR) highlights the fact that SMEs will have to complete 33 administrative tasks in the run-up to their staging dates, and estimates such preparatory work could take each business up to 103 days. Not only that, but SMEs will have to be prepared to establish administrative systems and processes that the CEBR estimates could take more than three man-days each month to run on an ongoing basis.

For an SME that might not have the internal resources of a large company, Independent Financial Advisers (IFA) like Central Investment make an attractive option, able to support and advise employers through all stages of auto-enrolment and provide support past a staging date. From HR to finance, many departments will be affected by auto-enrolment. One of the most important areas that will need to have proper procedures in place will be payroll. For companies where the workforce is split between monthly and weekly pay reference periods, this will further increase time burdens to fit in with corresponding workforce assessment procedures. Another key area of focus for employers is clear communication to staff members when changes are going to be implemented and how they are going to affect actions going forward. Systems will need to be put in place to ensure that all employees are clear on upcoming changes and have a good understanding of what auto-enrolment will mean for them.

Though this process may be daunting to an employer, they will find it more cost-effective in the long run to be fully compliant from the beginning. The Pensions Regulator has instigated an escalating system of fines for non-compliance that it will strictly enforce. With a daily rate based on numbers of affected workers, fines begin at £500 per day for companies with 5-49 employees and work up to £2,500 per day for companies with 50-249 employees.  From initial consultancy to ongoing data management and record keeping beyond the staging date, Central Investment can advise on all matters of auto-enrolment. Experienced advisers can help with every step to bring a full solution to employers, including payroll innovations and internal communications to all employees within a company.

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