Let me state right up front that any initiative which means more savings that can reward the employees of UK SMEs in their retirement has to be positive news. However, in the past few months, the game has changed for auto-enrolment in a way that could have serious implications for business owners and advisors alike.
We are now one year in to auto-enrolment and without doubt it has met with a positive response. More than 1.6 million employees have already signed-up to auto-enrolment company pension schemes since its launch.
Clearly the big corporates have done well in communicating the benefits to their staff. Now it’s the turn of the SMEs as the staging dates for smaller companies loom large and they are turning to their advisors for help.
One aspect of auto-enrolment is very clear: auto-enrolment is not about pensions, it is about compliance. For those advisors who have already worked this out, the past few months and the immediate horizon is filled with planning for implementation with their clients. However, a very serious shock awaits those who believe that, having established an employee pension scheme for their clients in the past, the process of changing this over to an auto-enrolment system will be straightforward.
The game has changed and pension providers in particular have moved the goalposts. Some, such as Scottish Life, have quite openly declared that without a minimum of six months’ notice ahead of company staging dates, they will not accept any auto-enrolment business from new or existing customers, unless stringent criteria are met.
Legal and General has also declared a similar position, although it is more coy about the cut-off date.
And it is not just the pension providers. A critical element in the auto-enrolment implementation process is middleware – the software that provides the vital link between payroll and pension. Now, even the likes of auto-enrolment guru and founder of cloud based Jargon Free Benefits Steve Bee has stated that it will not be able to deal with new business without at least four months’ notice.
The administration and compliance elements of auto-enrolment are not easy and it is not a simple matter of transferring an existing scheme over to the new regime. Now, with more than 95 per cent of the UK’s business economy comprising SMEs, many with fewer than 50 employees and staging dates starting from April 2015, a capacity crunch is imminent.
Whether a company has 10 employees or 1,000, the steps to implementing auto-enrolment are more or less the same. The biggest challenge is ensuring compliant interaction between payroll and the pension scheme and this is not, necessarily, an area of expertise for many IFAs or business advisors.
There are a limited number of expert resources in the UK. With hundreds of thousands of small businesses facing the same situation, there is already clear evidence that these resources are coming under pressure to help business owners – and their advisors – plan and implement the auto-enrolment process. Clearly the pension providers are aware of this too.
The game has changed for auto-enrolment and advisors now need to be ahead of the game or face the consequences.
Anthony Carty is group financial planning director at Clifton Wealth