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Auto-enrolment: Getting down to the minutiae

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23rd Nov 2012
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By now most small businesses will be aware that auto-enrolment means eventually nearly all employees will automatically become members of a pension scheme through work.

Following a ‘trouble spots’ feature looking at the bigger picture issues, which found companies need at least 18 months of preparation to deal with the complexities, we’ve drilled down to the minutiae of the initiative.

AccountingWEB caught up with Graham Poulteney, a pensions consultant at Broadstone, who identified some of the “nitty gritty” issues for small businesses.

Middleware

Middleware is software that glues different IT systems together and in the context of auto-enrolment, this means analysing the age and salary data of your workforce, working out the earnings upon which contributions are based, taking deductions through payroll and paying them over to the pension provider.

What auto-enrolment means for employers

Grant Thornton has produced a document on the key issues finance directors will need to consider, including:

Cost

• What would the cost be if all your employees joined your existing scheme?

• How much internal resource is needed?

• What options are available to help reduce the cost of implementation?

Compliance

• Do you know what you are required to do and by when?

• Can you identify who needs to be included?

• Should you wait for the deadline or implement changes to benefits earlier?

• Are you aware of the rules regarding recruitment that are already in force?

Your employees

• What can your business do to help employees appreciate the benefits of joining a scheme?

• Will any staff lose 'enhanced protection' if auto enrolled?

Your scheme

• Is your existing scheme fit for purpose?

• Will contribution levels need to increase?

Poulteney said we're now “getting down to the nitty gritty” in what middleware systems will and won't do.

“It's throwing up a lot of issues for businesses that have low-paid, casual, high-turnover staff,” he said, adding that it could feel “like hell monitoring and assessing” these aspects.

Poulteney questioned what the various providers of middleware will do and won't do: “If you take a couple of pension providers, such as Scottish Widows and Aegon, they've developed a piece of kit that if you're doing a GPP [group personal pension plan] with them, will monitor and assess your staff. So if you're sub-categorising them into people in a GPP and some in NEST and so forth, it will spit them out.”

“Depending on what you're using, some will deal with NEST for you or just send back a payroll file with all the annotations and you have to do them yourself; so there are a lot of differences there,” he said.

Payroll providers

One of the big questions for small-and-medium-sized employers is whether payroll will be able to cope.

You’ll need to make sure the correct people at your payroll provider and your pension provider are talking to each other and exchanging data in the right format. You will also need to decide whether payroll will handle employee categorisation ensuring that your auto-enrolment obligations are met compliantly or whether your pension provider will do this.

Poulteney said that payroll providers were “not desperately ready” and that recently they have been more focussed on the introduction of Real Time Information.

“So you've only got a select few, among the bigger organisations, that have actually got solutions developed. They come potentially with a big price ticket for using their systems and it’s that's sort of thing focussing people's attentions now,” Poulteney said.

Foreign nationals

A large question mark hangs over what businesses should do who have foreign nationals working for them for a certain period. Recurring questions include "Do you have to auto-enrol a foreign national" and "when are they classified as a worker?"

Poulteney advised: “You fire these things off to DWP or the regulator and you get the impression they're waiting for case law to give them help in some of these areas.

“Do you want a situation where even a farm worker is exempt maybe because he or she is in a satisfactory scheme from wherever they've been seconded in?”

Poulteney added that he had clients that were still looking at whether to do whole re-banded earnings, or to go for a tier two certification, or a combination of the two, adding that “the overriding driver was to keep the costs down to a minimum”.

Employers are gradually becoming more aware of auto-enrolment, but so far, this has been a slow and painstaking process, Poulteney concluded.

What other trouble-spot areas and issues are you anticipating with the introduction of auto-enrolment?

Replies (2)

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By neiltonks
23rd Nov 2012 15:06

Payroll

We keep hearing people say "payroll providers aren't ready" with regards to AE but that's something of a simplification.

Payroll system providers make facilities available in a timely manner for their clients, which in the case of AE isn't necessarily any time soon.

So, the company I work for didn't have a solution ready for October, but that's because we don't have any clients with a staging date until early next year and we planned our development around making sure they'll be supported at that point.

Providers whose customer base is organisations with less than 50 employees probably won't have anyone with a staging date this side of mid-2015. It's perhaps hardly surprising that most of these haven't provided a solution at the moment, getting on for three years before anyone will require it.

Employers certainly need to ask their provider about their plans, but also bear in mind the date when support will actually be required!

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By aburt01
29th Nov 2012 11:08

All companies were affected from October 2012

.. with regard certain employment rights for employees and new starters.

The payroll / pension deduction function needs to be in place by the staging date, and as stated by others, for small organisations this can be years from now.   

N.B. Some organisations have decided to comply earlier than their staging date.

 

There is much to take in - payroll is but a part of the story. 

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