2. 2 Workplace pension planning
Introduction
The law on workplace pensions has changed;
under the Pensions Act 2008, every employer in
the UK must put all eligible staff into a pension
scheme and contribute towards it. This is called
‘automatic enrolment’.
It is important for you to understand your role in
running a good quality pension scheme. If you
employ at least one person you have certain legal
duties. It is therefore extremely important that you
understand what to do and by when.
In this guide I have identified 5 key areas you
need to address to ensure compliance with The
Pensions Regulator.
David Roderick
Development Director
3. 35 things to consider if you're planning for auto-enrolment
1. Selecting the right
pension scheme
As an employer YOU are responsible for selecting
a suitable pension scheme for your employees.
In order to comply with your legal obligations
you MUST choose a scheme that meets the
QUALIFYING rules and, is prepared to accept
your workforce. Not all qualifying pensions are the
same and some may contain restrictions or lack
suitable options.
By April 2019 you will be contributing 8%
of an employee’s wage into your chosen
scheme and for many this is likely to grow
to one of the largest assets they have.
Those failing to take adequate care in selecting
an appropriate scheme for their employees could
potentially be walking into a nightmare situation
for their business in years to come; the amounts
of money involved with workplace pensions could
make the PPI scandal look like loose change.
How will you protect your business should
your employees challenge you on your
pension scheme choice?
Making sure you’ve got it right
Legal experts recommend that you exercise care,
reviewing all available options and recording your
attempts at finding the most appropriate solution.
My advice is to review the market and compare
management charges, scheme restrictions, the
type of investment options offered AND make sure
you have it all written down to justify your choice of
scheme.
By seeking further professional advice you can:
• Ensure you are doing the right thing by your
employees
• Demonstrate due diligence
• Access better quality pension schemes
• Possibly receive lower management charges.
4. 4 Workplace pension planning
Should I just use NEST?
NEST, often mistakenly called the GOVERNMENT
SCHEME, should not simply be considered as
your default choice.
It does provide a suitable choice of pension
provider for some, but not necessarily all
employees; the charging structure means that
some employees MAY be paying higher charges
than with other available schemes.
NEST also has a number of restrictions on
contributions and transfers which may not be
suitable for all, and unlike many other options, it
does not have discretionary death benefits.
NEST is currently free of charge to employers,
but there is no certainty it will remain this way
and whilst NEST meets the statutory obligation
to provide a qualifying scheme you will still have
to demonstrate why it was selected as the most
appropriate choice and how it compared to the
other options available.
5. 55 things to consider if you're planning for auto-enrolment
2. Time and
resource
Many employers significantly underestimate the
time and resource required to administer all of
their workplace pension duties. There is a strong
chance you have never administered a pension
scheme before so these ongoing requirements
may be completely new to you.
It’s not a 5 minute job
Preparing for and running auto-enrolment every
month is not a small task, despite bold claims
from various software providers. The actual time
taken varies from business to business; a recent
independent report conducted by Leeds Business
University suggests the average time taken for
SMEs to manage auto-enrolment is 4.5 hours per
month.
You are managing people’s retirement
funds; their financial future – extra care
and due diligence must be taken with each
piece of data processed.
Time versus cost
Outsourcing your workplace pension duties is a
good option, however if you chose to administer
the work in-house each month you must make sure
you schedule sufficient time, we also recommend
that you use some form of software to help collate
everything.
Find out what needs to be done before, at
and after your staging date with our free
auto-enrolment checklist.
DOWNLOAD >
Validating your data
Although software packages save you time, they
also increase the risk to your business as most
DO NOT validate your data. Software packages
DO NOT sense check the data output, therefore
you cannot presume the data you are using is
sufficient to be compliant for auto-enrolment.
There are two ways of running auto-
enrolment; the correct way which takes
time and application, and the quick way!
The time and cost it may take to rectify
mistakes made early on could significantly
outweigh any short-term savings.
6. 6 Workplace pension planning
3. Payroll
misconceptions
Many payroll providers and software companies
now offer an auto-enrolment solution; however
these systems only work if they are set-up
correctly.
Data quality
Payroll systems process the data you input,
and unless you validate the data each time you
perform an upload, there’s no guarantee it will be
100% accurate. We recommend sourcing a payroll
provider that will validate and audit your data each
month.
Figures provided to the parliamentary
Work and Pensions Committee in May
2016 by the Chartered Institute of Payroll
Professionals suggests that around 25% of
employers are incorrectly processing auto-
enrolment.*
Having carried out a significant number of audits,
we would suggest this figure is actually closer
to 50% and the types of errors we encounter
are commonly repeated, all leading to breaches
identified by Workplace Pension legislation.
In over 14 years of administering workplace
pension schemes, whether large or small, it is
extremely rare that we receive data that’s 100%
accurate.
My payroll solution will do it all
Auto-enrolment is YOUR responsibility and there
are very few software companies and payroll
bureaus who will take on full responsibility for
you. The Pensions Regulator (TPR) released the
following statement in February 2016 to re-iterate
this message to employers;
“Advisers (payroll, accountants and financial
advisers) are being urged to be clear with their
clients about the automatic enrolment services
they’re providing after our latest automatic
enrolment report revealed that employers were
fined for failings after mistakenly believing they
were being addressed by their advisers.”
If you are looking to source a payroll
solution that will administer auto-enrolment
TPR recommends that you obtain an
agreement from your chosen provider
which details who will be responsible
for each task and crucially, areas not
covered by their service that will need to be
addressed by yourself.
Don’t let your payroll provider dictate
your pension choice
How would your employees feel if your choice
of pension provider was dictated by your
payroll software, rather than one that was most
appropriate for their needs?
Your choice of pension scheme should
dictate your system needs, not the other
way round!
* https://www.parliament.uk/business/committees/committees-a-z/commons-select/work-and-pensions-committee/inquiries/parliament-2015/inquiry/
7. 75 things to consider if you're planning for auto-enrolment
4. The impact on
your business
If you are planning on managing your auto-
enrolment project in-house, you need to consider
who will take responsibility and allocate sufficient
time, resource and training to ensure it is delivered
compliantly and on time.
The average time taken to administer auto-
enrolment is 4.5 hours per month**
Support services and software
You will also need some form of software to
manage your responsibilities. Remember, not
all software covers your duties - we recommend
comparing providers and assessing who will
perform what and at what price.
Purchasing a suitable software solution
and spending a few hours a month
administering your pension scheme may
cost more than a fully outsourced option.
Costs
Not all pension scheme providers charge in the
same way. You MUST make sure you’re fully aware
of all the costs associated with the set-up and
running of your pension scheme as auto-enrolment
may cost you more than you initially realise.
Risk and liability
Automatically enrolling your employees is your
main priority, but ensuring you are fully compliant
is another MAJOR element of your project.
Action from TPR could lead to significant penalties
to address any historic issues. We recommend
investing suitable amounts of time each month to
ensure compliance and minimise the risk of any
actions from The Regulator.
The greatest risk you could face as an
employer is from potential claims in the
future from employees who believe they
were disadvantaged by the choices you
made or allege that you failed to follow the
correct process.
** Automatic enrolment: The payroll perspective. Dr Iain Clacher. September 2015
8. 8 Workplace pension planning
5. Your core
duties checklist
And finally, here’s my list of our the five core duties your business will need to undertake to comply with its
Workplace Pension duties:
Core tasks
1. Select an appropriate pension scheme.
2. Categorise your workers into segments based upon their eligibility – remember it’s not
just those on PAYE that need to be considered.
3. Once you reach your staging date, and for every pay reference period thereafter,
you need to assess your workers to calculate who needs to be enrolled and the
contributions payable.
4. Communicate to your employees and update any changes.
5. Maintain full and accurate records, not only is this a statutory duty but it is the only
defence against any future claims.
... and don’t forget to complete your statutory declarations.
9. 95 things to consider if you're planning for auto-enrolment
For further information on what you need to do, contact our
auto-enrolment team to discuss your options:
01527 571 305
online@johnsonfleming.com
www.johnsonfleming.com
@JohnsonFleming
Johnson Fleming Group Limited
Fleming House
Bromsgrove Enterprise Park
Bromsgrove
B60 3AL
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