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Beware the auto enrolment pain points

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20th May 2015
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David White of Creative Auto Enrolment explains the top auto enrolment hurdles accountants should watch out for, and avoid.

The recent auto enrolment compliance bulletin from The Pensions Regulator (TPR) was a stark reminder of how auto enrolment is still proving tricky for businesses – and how there will be a busy time ahead for accountants.

The number of firms that have faced fixed penalty notices for non-compliance has rocketed from just three to 367 in the last six months alone. And with this year marking the first staging dates for the nation’s army of 1.2 million small businesses, these numbers look set to rise further still.

These businesses will be turning to their advisers for help, with research by TPR showing that eight in 10 SME employers have consulted, or plan to consult, a business adviser for assistance. And accountants will be at – or very close to – the top of the list. Forearmed is forewarned, so when you’re asked for help with auto enrolment, what are the main challenges that are likely to lie ahead?

SME minefield

SMEs come in all shapes and sizes, and this will create a minefield of challenges. Businesses with no employees (i.e. one-man bands) do not have auto enrolment responsibilities – but they will do when they make their first hire. Some freelance staff and those on paid leave must still be assessed and potentially enrolled in to a pension scheme.

Those firms that employ low-paid staff who aren’t eligible for auto enrolment must still have a pension scheme in place so that these workers can opt-in or join the scheme. Unless both are directors, husband and wife teams are required to assess workers and make a pension scheme available, even if neither plans to pay into it. These will be the hurdles at which many businesses will fall. As their advisor, it’s crucial you are able to help them avoid getting this wrong.

Declaring compliance

Even if a business doesn’t have any employees and has no-one to auto enrol, it must still complete the declaration of compliance, to confirm that the firm has complied with its duties. However, according to data from TPR, just 55% of accountants are aware that this needs to be completed with them.

Even if you are fully aware of the task, you may be asked to complete the declaration for multiple clients. And with 20 separate complex pieces of information required to do so, it’s neither a fast nor an easy undertaking.

It’s therefore important to understand how to complete the declaration, and factor time in to do so – or your clients will face non-compliance notices and the associated fines.

Payroll nightmare

Ensuring that pension contributions are made without error is obviously a key part of the auto enrolment process, but it’s also a key time when things can go wrong.

If you handle payrolls for 150 clients, that means uploading data 150 different times, in completely different formats, to different providers with different rules. Not only does this take up a big chunk of time, it is fertile ground for mistakes to be made.

Small businesses will be staging over the next three years. As their primary business adviser, many businesses will be approaching you for help, if they haven’t already done so. But it’s very likely that even those that don’t approach you will need your support.

Our recent survey of over 500 small businesses staging over the next three years showed that 11% don’t know what auto enrolment is and almost one in five (19%) will leave auto enrolment until the last minute due to other priorities.

Accountants therefore have a duty not only to be fully prepared to help clients with the process, but also to proactively seek to help those firms that may not have even considered their responsibilities. These businesses are at risk of potentially hefty fines if they get auto enrolment wrong; and as their adviser you may well find yourself in the firing line if this happens. Finding a solution that will help both you and your clients to navigate the auto enrolment maze will help alleviate this huge administrative burden.

David White is managing director of Creative Auto Enrolment .

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 (7)

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Euan's picture
By Euan MacLennan
20th May 2015 14:08

Are you sure?

David White59 wrote:

Those firms that employ low-paid staff who aren’t eligible for auto enrolment must still have a pension scheme in place so that these workers can opt-in or join the scheme.

Why is there a need to have an AE compliant pension scheme in place before any Non-eligible Jobholders choose to opt in?  Is this just a matter of the practical difficulty of being able to set up a scheme in time if someone does ask to opt in?

As Entitled Workers only have the right to ask their employer to run a pension scheme for them, to which the employer need not contribute and which is not therefore an AE compliant scheme, why do you say that there must be a pension scheme in place just in case an entitled worker might ask to join one?

 

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Replying to WallyGandy:
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By facucvivas
22nd May 2015 20:38

Not correct
If you have no workers to auto enrol, you do not need a pension scheme

If your employees decide they want to opt in, at that point you neeed to establish a qualifying scheme

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Replying to Alex_T:
Richard Pilmore FMAAT - RLTP Accountants
By rpilmore
26th May 2015 13:31

Not correct

facucvivas wrote:
If you have no workers to auto enrol, you do not need a pension scheme If your employees decide they want to opt in, at that point you neeed to establish a qualifying scheme

If a PAYE scheme is in place, and ANY staff whether they be Non-Eligible, Eligible or Entitled for the pension, a pension scheme must be in place. The only exception to this rule is when a Ltd company has a PAYE scheme, which is purely to pay directors where a maximum of one director has a contract of employment.

By not having a scheme in place, you would face penalties from the pension regulator, regardless of whether any staff are automatically opted into the scheme or not. Any employee has an option to opt into the pension scheme, and if a pension scheme is not open, how can they opt in? 

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Replying to markmorley:
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By facucvivas
26th May 2015 13:52

Still not correct

rpilmore wrote:

facucvivas wrote:
If you have no workers to auto enrol, you do not need a pension scheme If your employees decide they want to opt in, at that point you neeed to establish a qualifying scheme

If a PAYE scheme is in place, and ANY staff whether they be Non-Eligible, Eligible or Entitled for the pension, a pension scheme must be in place. The only exception to this rule is when a Ltd company has a PAYE scheme, which is purely to pay directors where a maximum of one director has a contract of employment.

By not having a scheme in place, you would face penalties from the pension regulator, regardless of whether any staff are automatically opted into the scheme or not. Any employee has an option to opt into the pension scheme, and if a pension scheme is not open, how can they opt in? 

 

I sent the following question to TPR

'Please can you just let me know if my understanding is correct. If a scheme consists of only non-eligible job holders, they do not have to set up a pension scheme for auto enrolment. I believe they do however need to complete the Declaration of Compliance on your website.'

This is the reply I received

'Thank you for your recent email dated the 21 January 2015. An employer will need a pension scheme in place when necessary this is where a worker meets the eligible job holder criteria or when an employer receives a valid opt in notice. Please note that if the employer does not have any eligible job holders on the staging date the employer may not need a pension scheme in place. However if any of the above occurs the employer will need to have a scheme in place and ensure active membership is achieved within the six week joining window. Furthermore, every employer must declare compliance with the Regulator. Employers have up to five calendar months from their staging date to declare their compliance via our online portal.

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Replying to IrwinSchiff:
Richard Pilmore FMAAT - RLTP Accountants
By rpilmore
26th May 2015 17:23

Very confused by the whole situation

facucvivas wrote:

An employer will need a pension scheme in place when necessary this is where a worker meets the eligible job holder criteria or when an employer receives a valid opt in notice.


How do they specify a valid opt in notice? for example, now:pensions writes out to employees who are not eligible, giving them the option to opt in. Now:pensions then issues an opt in notice, but if a scheme is not set up, who is providing the employees with that information? Is it then the responsibility of the employers to write to staff and provide an opt in notice?
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Replying to CJaneH:
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By facucvivas
27th May 2015 13:53

Opt

rpilmore wrote:
facucvivas wrote:

An employer will need a pension scheme in place when necessary this is where a worker meets the eligible job holder criteria or when an employer receives a valid opt in notice.

How do they specify a valid opt in notice? for example, now:pensions writes out to employees who are not eligible, giving them the option to opt in. Now:pensions then issues an opt in notice, but if a scheme is not set up, who is providing the employees with that information? Is it then the responsibility of the employers to write to staff and provide an opt in notice?

 

It is the employers responsibility to write to all their employees to tell them which category they fall into. They have to tell all Eligible Jobholders that they will be Auto enrolled, (if the have any) and write to Non Eligible Jobholders and Entitled workers to say that they wont be enrolled unless they opt in.

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By Creative Auto Enrolment
26th May 2015 17:08

The legislation is clear that employers have to make a pension scheme available for Eligible Jobholders at outset or where Entitled Workers or Non-Eligible Jobholders request  to opt in or join.  This applies even if all Eligible Jobholders opt out. The Declaration of Compliance requires each employer to confirm what scheme(s) they are using.

 

You are correct that there could be practical difficulties with setting up a scheme for only this type of worker, especially if it is left to the last minute. We would always recommend that employers have a scheme in place from their staging date for this very reason. Employees can become Eligible Jobholders in any payroll period.

 

The number of employers staging is about to increase dramatically and over 100,000 employers will be staging each quarter from the start of 2016. Providers are already regularly reviewing their criteria to manage volumes. Offering a scheme for only low paid workers that may never have any members is never going to be the most attractive for commercial providers.  As such, employers who have Entitled workers only are likely to have a restricted choice available to them.

 

One other comment – I think you are suggesting that employer contributions make a scheme AE compliant. That’s not the case. The criteria that make a scheme a qualifying scheme relate to the pension itself and are things like ensuring the default fund charges are within the government’s charge cap and that a member can be enrolled without the need to return any paperwork.

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