West Midlands businesses owners could face a last minute scramble to ensure they are complying with the new pensions automatic enrolment regulations unless they put in place an orderly timetable of action, experts at in Birmingham are warning.
All businesses, regardless of size, on a timeline from largest to smallest, will within the next five years need to have suitable arrangements in place to allow their eligible workers to be automatically enrolled in a qualifying pension scheme.
This can be the firm’s existing pension scheme, if it meets the right criteria, but otherwise businesses will have either to put in place their own pension scheme or use NEST – the National Employment Savings Trust.
EFG-IFA client director Rob Davies said: “Having a compliant pension scheme in place is already compulsory for employers with 50,000 or more persons in their PAYE scheme.
“By as early as May 1, 2014, all those employers with at least 90 workers in their largest PAYE scheme will have become subject to the automatic enrolment requirements, followed by smaller businesses over the next three years.
“If you already provide a pension scheme for some or all of your staff, you will need to check if it already meets the requirements for an automatic enrolment scheme and, if not, whether it can be modified to meet the required standards.
“For some employers a one-scheme solution may not be appropriate, with perhaps a private pension scheme being used alongside, say, NEST.”
Mr Davies has compiled a Ten Point Action Plan for businesses to work through to help them comply with the new laws in a timely and appropriate manner:
1. Know your “staging date” for complying with the new duties. The Pensions Regulator will write to employers around 12 months before their staging date but earlier awareness is strongly recommended, if only for financial forecasting purposes.
2. Set up a project team, including representatives from Payroll, HR and Finance.
3. Assess your workforce according to the Categories of “worker” defined by The Pensions Regulator in its detailed guidance notes. A preliminary audit of the workforce should also highlight any individuals where there may be doubt as to whether they are “workers” for the purpose of the new requirements.
4. Using the results of your audit, model the potential additional / new pension costs arising from automatic enrolment and voluntary opt-ins, allowing for a certain number of opt-outs. Consider whether statutory minimum contributions and/or (higher) certified contributions should be paid, and whether these should be on a phased basis.
5. Review any existing pension arrangements for suitability as a qualifying automatic enrolment scheme. While many existing schemes can and will be modified to meet the quality criteria, other schemes may operate on outdated administration systems and / or be generally uncompetitive in today’s marketplace. Also, it should be noted that some pension providers might decline to extend the terms of existing schemes to future joiners on an automatic enrolment basis if it would impact unfavourably on the existing average contribution and / or membership persistency level. Therefore, there may be a need for a new pension scheme to be sourced and implemented, which will add to the work needed to be done.
6. Evaluate the different options for meeting the new requirements before deciding on a solution that best meets the needs of your business and your staff, as part of the wider business and reward strategies.
7. Consider any suitable cost-absorption measures, including salary sacrifice.
8. Examine the implications for any associated benefits and the costs to the employer. For example, if only pensioned employees receive life insurance, should this practice continue under automatic enrolment?
9. Think about how you will deal with all the necessary administration and communication processes in a compliant manner, both at your staging date and ongoing. Pension providers, payroll providers and other third – parties are launching online automated systems designed to alleviate the administrative burden on employers. However, some systems will be more complete / flexible than others, some involving additional charges. Care should therefore be taken to ensure that any system under consideration fully meets the specific needs of the employer.
10. Consider any changes to contracts of employment, Employee Handbook, etc, that may be required.
Mr Davies said: “The above information is by no means exhaustive. Professional advice should be sought as necessary concerning the specific implications of the new requirements in individual situations.”
But he cautioned: “There are many thousands more medium to large sized businesses in the UK than there are qualified independent financial advisers and employee benefit consultants with specific experience in workplace pension provision.
“Leaving your automatic enrolment arrangements to the last minute could find you scrambling to locate suitable professional advice at current costs.”