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Auto enrolment: Suffering from ostrich syndrome?

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25th Jun 2014
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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

The current wave of 30,000 employers in a four-month period does ease off over this summer

30 to 50 employees

The second wave starts to build after the May 2015 election and peaks at around 40,000 employers per month in spring 2016

Less than 10 employees

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

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.

Replies (5)

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Euan's picture
By Euan MacLennan
26th Jun 2014 13:53

A reasonable summary ...

Ian Patterson wrote:

Whilst AE is a big issue for employers, it is a much bigger issue for accountants.

... spoilt by a ludicrous assertion (and an inflammatory heading).

 

Thanks (2)
By buttercup books
28th Jun 2014 11:48

Financial Advisers - Costly

Like many Sole Trader practices, I'm not licenced as a Pension Adviser - so I spoke with my local IFA- with reference to my numerous less than 10 employee payrolls- all staging dates are in 2017. (They are affiliated with the local insurance broker that usually gives very sound business insurance advise- so I often have dealings with the office)

Their basic charge for Auto Enrolment Advice and Service is £3500 for the initial setup and £1500 per annum  for govenance.

They readily admit there is no way that small employers can or would pay that kind of money to get their 1 or 2 members of staff through the auto enrolment system.

- perhaps they are deliberately pricing themselves out of that market -

but where do I find a reasonable cost IFA - because even going down the government NEST route without consultations with an IFA to ensure that NEST is appropriate and compliant - would leave the employer open to charges of mis-selling pensions to staff - and me open to charges of goodness knows what 

- any suggestions would be appreciated

 

Edit - Sorry - I should have made it clear that the prices quoted were per employer

Thanks (0)
Replying to dl100tr:
avatar
By chatman
28th Jun 2014 12:15

Not that bad, surely.

buttercup books wrote:
even going down the government NEST route without consultations with an IFA to ensure that NEST is appropriate and compliant - would leave the employer open to charges of mis-selling pensions to staff - and me open to charges of goodness knows what

Surely not. If you said to a client "We cannot advise on which pension company to use, but we use Now/NEST/People's Pensions. Let us know if you would like to use our service", I would not have thought you would be contravening any rules. Similarly with the employer.

Thanks (1)
Replying to dl100tr:
By xtraman88
01st Jul 2014 11:10

Cost for SME's and Micro Employers

The Pension Administrator has national coverage and their package starts from £500 plus Vat and it removes the burden from accountant and client as for ongoing governance up to 5 employees should not be paying anymore than £20 per month

www.thepensionadministrator.com

Thanks (1)
By xtraman88
01st Jul 2014 12:24

Ian

To confuse everyone a bit more a tronch of 100,00 employers have been spread across the staging dates from May 2015 to even out the numbers per month there are micro employers staging in 2015 . Everyone needs to check thier clients staging dates on The Pensions Regulators web site do not assume a date based on number of employees.

Thanks (0)