Employers are undertaking one of the biggest changes to pension provision in UK history, with major with major implications for advisers. So there we all were, a gathering of the clans coming together for the quarterly conference of the Personal Finance Society. Advisers young and old, sole practitioners and large firm representatives, tied and independent all waiting to hear the latest update on 'Auto Enrolment and the Duties of the Employer' from Gareth Hughes, Senior Financial Planning Manager at AVIVA.
It is fair to say we generally expected to hear, firstly an overview of the current experience of auto enrolment, and ways in which we as advisers can help business owners and finance directors navigate the process. What we didn't expect to hear was one bombshell after the other.
To begin with, we heard that traditional pension offices are beginning to cherry pick and close their doors to all but the largest employee schemes. It perhaps makes short term economic sense to turn away employers only willing to make the initial 1% of salary contribution, particularly if they only have have half a dozen employees.
Employers must auto enrol their workforce into a workplace pension by their staging date and have a payroll system that doesn't just manage the pension collections but is also capable of the more sophisticated reports that are needed.
Now for the next bombshell. Speaking from his own company experience, AVIVA, Gareth said that companies with six months or less to their staging date are being turned away, "We can't help if you are six months away from your staging date. My daughter always wishes that she started her homework earlier, its no different, you can't start early enough with this".
Auto enrolment has already started for the largest employers with 1.7 million already enrolled into workplace pensions. According to the Department of Work and Pensions, there is going to be a huge spike in numbers of companies with a staging dates from April to August of 2014 with an overall number of 40,000 companies needing to comply with auto enrolment and possibly £130,000 employees per month needing to be "processed".
Now the third bombshell, the government and the Office of Fair Trading are looking at a charging cap on the annual management charge for schemes used for auto enrolment and it seems likely that this will be set at 0.75% per annum. Yet this still has to be passed by government, who are looking to make an announcement in April 2014 for implementation by 2015. A date after which many companies will have auto enrolled and, if they have chosen to use schemes where the annual management charges are above 0.75% then they may well have to be unravelled in order that lower charges can be applied.
So are we heading for a meltdown - possibly but if not a meltdown employers might only have recourse to N,E.S.T to comply with auto enrolment.
Perhaps not if you take Gareth's advice, " you can't start early enough with this". Accepted advice from the experts is you that employers need to start planning for auto enrolment eighteen months before the staging date. This can be found out by entering your PAYE reference number on The Pensions Regulator Website.
Here is a short breakdown of issues that you might want to consider in the workplace around auto enrolment.
1. Identify your staging date and basic duties as an employer.
2. Assess your staff and identify who is classed as a worker, who is an eligible job holder, a non eligible job holder and an entitled worker.
3. Identify what is considered as qualifying earnings, re-examine contracts of employment
4. Examine your existing scheme, are the charges compliant, are the contribution levels sufficient and compliant
5. Budget for cost of options, for consultancy fees and for any improvement to the payroll.
6. Is the payroll system robust, does it have an integrated approach, do you require a third party system ?
7. Is your employee data clean and wide enough to allow assessment. Is hiring and firing done on the same site?
8. Evaluate your communication strategy with the workforce.
9. Send communications to the workforce
10. Train someone within the company to manage the new payroll and reporting responsibilities.
11. Conduct some dummy runs.
.....and at the end of all this if as an employer you fail to stage and auto enrol your workforce in time there is a fixed penalty of £400 plus daily penalties, ranging from £50 for small employers with 1-4 workers to £10,000 per day for those with 500 or more. For wilful failure to comply the employer could face a custodial sentence.
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Welcome to the blog curated by Jill Turner. The pages are not intended to give advice, they are just the real life stories from a real life financial planner and the wonderful people I get to meet.
I want the pages to be engaging, informative and purposeful.
The information contained within this blog is based on our understanding of current government proposals and tax
law, both are liable to change in the future.
Jill Turner is a member of the Personal Financial Society