A myriad of surveys released at the end of 2013 paint the picture that, although the first phase of auto enrollment can be deemed a success, the next tranche of employers to go through their automatic enrollment may not be.
A survey conducted last summer by the Association of Consulting Actuaries showed that small employers are far from ready for auto enrollment and will look to their financial advisers, accountants and legal advisers for guidance and help through the process. The survey’s findings showed the following beliefs and expectations.
- The processes involved in preparing for auto-enrollment is ranked as the most problematic, followed by regulatory complexity with communications ranked fourth. These findings highlight the need for firms to start planning early, something the Regulator can be expected to drive home in 2014 as the staging date for small employers draws nearer.
- 82% of employers with fewer than 50 employees have not yet budgeted for the likely increase in costs.
- When budgeting for the cost of auto enrollment the median band of small employers (with fewer than 50 employees) assumed employee opt-out rates of 26%-30%. Hitherto the actual opt out rate is around 10%.
- Smaller employers expect a significant increase in payroll costs.
- 52% of employers expect to auto enroll all eligible jobholders into either an existing or new defined contribution scheme sponsored by the firm, while 22% expect to enroll employees into NEST or a new multi-employer scheme. However, half of small employers have not yet decided on their auto-enrollment scheme provider.
- 22% of employers plan to restrict previous non joiners and new entrants to a lower cost scheme sponsored by the firm, a multi-employer scheme or NEST.
According to The Pensions Regulator, a further 30,000 employers with more than 59 employees (as at 1 April 2012 PAYEE size) will be required to automatically enroll their eligible employees between April and the end of 2014.
The trigger thresholds for 2014/15 were announced by Pensions Minister, Steve Webb (the current thresholds for 2013/14 are shown in brackets):
- Automatic enrollment eligibility earnings trigger £10,000 (£9,440),in line with next tax year's personal allowance.
- Lower qualifying earnings band limit £5,772 (£5,668),in line with next year's lower earnings limit for NI contribution purposes.
- Upper qualifying earnings band limit £41,865 (£41,450),in line with next tax year's upper earnings limit and higher rate threshold.
These new regulations are awaiting Parliamentary approval but the Government intends them to be effective from April 2014. Other changes will include the welcome extension of the joining window and contribution deadlines for new members from four to six weeks. And there will be powers to exclude certain jobholders (e.g. those with enhanced or fixed protection) from automatic enrollment - thus avoiding the unintentional loss of such protection.
The fact remains that smaller employers are not prepared for auto enrollment. The first step must be to visit The Pensions Regulator website (www.thepensionsregulator.gov.uk)*, find your staging date and develop a plan for your business. Be aware that the availability of pension schemes (other than NEST which has a public service obligation) is already limited and professional advisers are also becoming stretched by the sheer numbers.
*Please note that Zen Benefits Ltd are not responsible for the content or the statements found on The Pensions Regulator website.
Tudor Griffiths has 30 years’ experience, specialising in financial planning and employee benefits advice for SMEs. Tudor is Director of Zen Benefits Ltd which he set up in 2012 specifically to provide practical help and advice to the thousands of medium and smaller employers struggling with auto enrollment.
Zen Benefits’ client offering is individual attention combined with technology solutions normally only available to much larger clients. Zen Benefits collaborates closely with accountants, solicitors, HR consultants and payroll bureau to ensure a comprehensive client solution.
Zen Benefits Ltd is an Independent Financial Adviser (IFA) and an appointed representative of Best Practice IFA Group Limited which is authorised and regulated by the Financial Conduct Authority.
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