The new workplace pension rules are already upon us, whether we like it or not. Any delays in taking action or ignoring the new rules until the last minute could cost clients dearly, explains Ian Patterson, head of tax at AVN.
1. The pension misconception
When automatic enrolment came into effect in 2012 there was an overwhelming belief that the financial services profession would deal with everything, perhaps because AE relates to pensions and falls into their area of expertise.
While the larger businesses that staged in the early months may have sufficient in-house resources – a payroll and possibly an HR department – it became clear that this wouldn’t be the case for smaller businesses, as they simply don’t have access to the in-house resources or expertise.
“They can outsource to an IFA!” you may say. Unfortunately it isn’t that straightforward and it is clear that more than an IFA is required.
2. The preparation time
Prior to staging there is a significant amount of work, coordinating between various parties and liaising with employees, before a pension scheme is selected and put in place. Over the six months prior to staging The Pensions Regulator recommends that employers should have:
- Checked which workers may need to be automatically enrolled into a pension scheme
- Chosen a pension scheme and confirmed that the pension provider will accept all their workers
- Ensured that the payroll system can support AE
- Started to make their workers aware of AE and the implications for them
Although each of these actions sounds simple, they can be very time consuming.
3. Over estimating its simplicity
Once staging date arrives and ongoing afterwards there is still a significant amount of compliance work that needs to be undertaken and records maintained. Workers need to be enrolled onto the chosen pension scheme, and assessed to determine eligible, non-eligible jobholders and entitled workers. Once assessed and contributions calculated, then payments need to be made to pension providers and appropriate adjustments made to payroll. Certain communications need to be made to employees throughout and auditable records of the whole process maintained. And if that wasn’t enough, employers also need to be able to handle postponements, opt-outs, joiners and triennial re-enrolments and meet the legal deadlines if they are not to suffer penalties.
4. The numbers don’t stack up
If the problem wasn’t big enough, there is a tsunami of employers who will reach their staging dates over the coming years, a lack of financial advisers available to deal with the pension work (let alone any of the compliance issues) and the fact that many pension providers are already closing their doors to new business from the smaller employers.
The tsunami
60 to 250 employees
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The current wave of 30,000 employers in a four-month period does ease off over this summer
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30 to 50 employees
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The second wave starts to build after the May 2015 election and peaks at around 40,000 employers per month in spring 2016
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Less than 10 employees
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However these waves are dwarfed from the end of 2016 when a final wave starts and peaks at up to 135,000 employers per month at the end of summer 2017 until early 2018
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Employers can be successful with help
In order for small and medium employers to be successful with AE they will need help and support from various parties;
- Financial adviser: To ensure existing or new pensions are appropriate and compliant
- Pension provider: To provide an appropriate pension scheme and processes for e.g. employees opting out
- Payroll: To deal with assessing employees each pay period, making appropriate adjustments for payroll and facilitating pension payments and audit records
- Accountants: Are key to bringing all parties together pre, and post staging to ensure that the correct actions are taken at the correct time so that the employer is fully compliant throughout
It is never too soon to start!
Although the principles of AE seem simple, no one should underestimate the practical complexities of the new rules or how early action should be taken before a client’s staging date.
It has been reported that many of the employers who have already staged took up to 18 months to get ready for staging. A significant period of this preparation time was focused on the operational aspects of AE, getting the right software and systems in place, as well as reviewing how to deal with the many exceptions that the new rules throw up. A similar period may be needed for many smaller employers.
Turn the problems into an opportunity
Whilst AE is a big issue for employers, it is a much bigger issue for accountants. Small and medium employers will turn to their trusted advisers, their accountants, to help them deal with the AE burden. It is potentially a huge opportunity for accountants to help their clients and prospects.
Accountants have a wealth of experience and are very effective at supporting clients with their compliance obligations, such as preparing accounts, tax returns, and payroll.
Accountants are key to project managing the whole process and ensuring the correct actions are taken at the correct time to keep the employer fully compliant throughout.
Ian Patterson is head of tax at AVN and is heavily involved with the development of many of the AVN tax systems and tools.
AccountingWEB has launched the No one gets left behind campaign to alert as many accountants as possible to the obligations implied by auto enrolment. Read our simple eight-point statement which sets out the auto enrolment facts you need to know.