Phased traffic lights
Nest is already talking to employers about planning for auto-enrolment advisers should too, says Jamie Clark, business development manager at Scottish Life
I’ve been speaking to employers about automatic enrolment and the new employer duties for a couple of years now. Some employers realise that they should really do something to prepare. Others are of the opinion that the changes are years away, so there’s no need to do anything now.
But the fact is, whatever way you cut it, automatic enrolment and the new employer duties will have a major impact on every single employer in the country.
There are a number of issues to be considered such as how to absorb the cost and the administration burden. Will the payroll system and staff be up to speed? Will the payroll provider offer assistance? This list is by no means exhaustive and each employer will have its own specific issues. And it is important to understand that it does not matter a jot whether an employer uses Nest or uses a pension scheme from a pension provider the employer duties, and the need to plan, apply regardless.
So given that employers should plan, what might this planning look like in practice?
The timeline set out below shows one possible route. It all starts with establishing the employer’s staging date which we’ll call T Day and working back from there. The staging date can be found in the regulations themselves or by visiting the Pensions Regulator website. Every employer in the UK needs to know when this date is.
From then on, the process can be divided into four key phases phase 1, research; phase 2, planning; phase 3, transition and phase 4, commencement, followed thereafter by ongoing monitoring.
Phase 1 should run between 18 and 12 months before the employer’s staging date T-18 to T-12 months. Issues to consider in this phase include the actual staging date itself and the employer’s workforce, whether they are full-time, seasonal, part-time or agency. Other issues at this stage include whether there is an existing scheme in place, if so, will it meet the minimum requirements, what is the current take up rate, how many employees will be auto enrolled for the first time and will the scheme provider support auto enrolment? The employer will also need to consider whether the terms and conditions of employment need to be changed, for example in respect of waiting periods and contract workers.
Phase 2 should run from T-12 months to T-6 months, involving deciding whether the existing scheme has to be changed and whether a new scheme is required instead of, or as well as the existing scheme.
It is important to understand that it does not matter a jot whether an employer uses Nest or uses a pension scheme from a pension provider - the employer duties, and the need to plan, apply regardless
This will also be a good time for the adviser to estimate the expected cost to the client’s business and consider how costs will be offset? Will they be passed on costs to customers or absorbed into profits, will there be a pay freeze in respect of the extra costs, or will salary exchange be utilised?
This period is when legal advice should be sought on whether any changes to employee contracts are needed.
Phase 3, running from T-6 to T-3 months should deal with transition issues, including the key decision of which pension scheme provider(s) are to be used. Will this be Nest, a group personal pension, or both? This phase will involve considering whether different schemes are to be offered for different categories of employees, whether Nest is to be used as a nursery scheme, whether different levels of contributions are to be offered for different categories of employee and whether senior executives are to be offered a separate scheme. Payroll solutions should be identified and put in place. This is also the time to communicate to staff details of the new scheme or any changes to an existing scheme.
Phase 4, running from T-6 months up to T-day, involves registering the scheme with the Pensions Regulator, and, on T-Day, starting to automatically enrol employees.
Thereafter advisers need to ensure the scheme meets the requirements every year, review the scheme provider/default investment fund on a regular basis, on the three year anniversary of T-Day, re-enrol any opt-outs, maintain relevant records and provide information to the Pensions Regulator on request.
Employers are going to need help. With around 86 per cent of the 1.2m employers in the country having no pension provision, or just a shell stakeholder, we’re going to be busy. That’s why providers and advisers must also have their own timeline, setting out how the industry will rise to the challenge of helping employers with automatic enrolment. After all, Nest is already doing this; and so should we.