Survey results from small and medium sized businesses show that not everyone is getting the message about workplace pensions.
Most say they know little or nothing about the new auto-enrolment pension scheme, and some who have heard about it say they intend to ignore it. They can’t ignore it, not without paying a huge penalty for every day they fail to comply, but the attitude shows that a real problem exists among the next level of auto enrollers.
Let’s be clear: I think working people saving for their retirement with help from their employers is a good thing. It’s good for the individuals and it’s great for the economy. Pensioners with money to spend contribute to growth and they’re not a burden on the taxpayer. But I do wonder: does it have to be so complicated?
Even small businesses have to wade through the bureaucratic quicksand of staging dates, opt-outs, deferrals, providers, hubs, contribution levels and entitlements. If that doesn’t confuse them, they will also need to understand whether the pension will meet the legislative requirements, or if it will be enhanced as a benefit to aid recruitment and retention of staff.
The seminars on workplace pensions I’ve been involved with in Birmingham over the last six months showed me that many key representatives of businesses attending expressed their dismay at how much work is required for the auto-enrolment staging date.
With four different definitions of pensionable pay at differing contribution rates, the ability to change or defer staging dates, a variety of ‘hubs’ and pension providers, and proscriptive wording for your letters to employees, it’s no wonder that some businesses are bemused by the prospect of initiating auto-enrolment. However, there will be no excuse for non-compliance, and some fairly huge penalties for businesses that fall behind in the process. So it’s time to buckle up.
It is not just the pensions that have to be considered. Contracts of employment or terms and conditions have to be changed, and the workforce has to be informed and consulted. Employers should be positive about the new system; the pension is a substantial benefit for your staff and they should make the most of it. That said, you must avoid offering financial advice on the pension scheme, as that has to be handled independently.
The problems don’t end when auto-enrolment has taken place, as it is only after staff have been enrolled and have received all of their paperwork from the pension provider that they can make the decision to opt-out of the pension. All eligible employees must be enrolled into the pension even if they tell you in advance that they do not want to join.
Enrolling employees with no intention of staying in the pension may seem futile, but the Government’s thinking is that an employee can only make a completely informed decision once he or she is in possession of all the facts.
Even after the employee has received this information and made his or her decision, the process is still not simple. The employee must opt out in writing using a form provided by the pension provider, not something from your own HR department. Provided all of this has taken place within 30 days, the employee has any payments already made returned to him or her and the employer has to keep a note of the opt out so that in three years’ time they can go through the whole process again.
I would underline the need for companies to start working towards their staging date as soon as they are advised of it, and to allow at least 12 months from the first consideration of pensions to the final implementation day. It is important to be confident that everything is in place, tested and working efficiently before the go live date.
There are experts who can explain the requirements of auto-enrolment as well as some of the challenges employers face in achieving a successful outcome to the project. Law firms don’t usually provide pensions, but they can provide all of the legal back up that you need and can also point you in the direction of the people who can help with your pension provision.