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Making auto-enrolment work: Employers need to start early

Those employers which felt that auto-enrolment was a task that could be left until the last possible moment have learnt to their cost the value of planning ahead.

Putting aside the difficulties employers are facing finding a suitable pensions provider, other than Nest of course, there is a lot of work which needs to be done to ensure the employer’s preferred system structure has the depth of functionality capable of delivering a compliant solution.

At the heart of successfully overcoming the demands of carrying out the full range of an employer’s duties including assessment, employee communication, contribution deductions and recording keeping is the ability to process data efficiently and accurately.

The traditional methods of data processing particularly from a payroll perspective have had to be redesigned or extended. This has in some instances created not only cost issues but training needs when time is at a premium.

Ensuring that data fields are correctly completed often needs a few attempts. Remembering to omit commas in addresses or ensuring earnings are inputted to two decimal places is perhaps something you learn by trial and error, a process that does not sit easily with the slick and efficient nature of auto-enrolment.

Time pressures have inevitably lead to a less diligent approach resulting in perhaps costly compromises and mistakes.

A good example of this is the issue of pay reference periods.

Some payroll providers have historically processed earnings data in tax periods – a feature lost on some employers which have perhaps assumed their pay period to be calendar months.

The ability to use tax periods has been available since November of last year, giving licence to some payroll providers to simply design add-on auto-enrolment modules to their existing systems rather than designing a completely new system.

Retaining tax periods has resulted in the careful consideration of postponement periods and the calculation of contributions.

Employers that wish to postpone assessment for the full threee months, particularly from their staging date, will need to be aware that if their pay reference period is, for example, tax months, they will have to use the tax month that straddles the postponement date for assessment purposes.

This is not necessarily a problem other than, technically, a contribution will be due for the period from the end of postponement to the end of the tax month. Will the payroll system calculate a pension contribution for a part month?

Table one: If deferment periods end mid-month, payroll systems need to be able to calculate partial contributions

Auto enrolment payment periods-2014
When deferment periods end mid-month, payroll systems need to calculate partial contributions

The alternative is to bring the postponement forward to the beginning of the tax month, earlier than anticipated and perhaps previously communicated.

Whilst most system providers have got to grips with the assessment aspects of auto-enrolment there are indications that some companies, particularly payroll providers, may not have grasped precisely the nuances of the communication requirements. For example, letter templates that make reference to the employee being able to opt out before assessment has taken place is a case in mind.

The protestations of Steve Webb that auto-enrolment was straightforward requiring little advice, if any, may have resulted in a false sense of security. Getting it right is a challenge; leaving it too late makes it an impossible one.

Glynn Jones is divisional director for group savings & investments at LEBC Group

Auto-enrolment staging dates by employer size
Employer size
Automatic Enrolment duty date
  From To
250 or more members 01-Oct-12 01-Feb-14
50 to 249 members 01-Apr-14 01-Apr-15
Test tranche for less than 30 members 01-Jun-15 30-Jun-15
30 to 49 members 01-Aug-15 01-Oct-15
Less than 30 members 01-Jan-16 01-Apr-17
Employers without PAYE schemes 01-Apr-17 – – –
New employers Apr 2012 to Mar 2013 01-May-17 – – –
New employers Apr 2013 to Mar 2014 01-Jul-17 – – –
New employers Apr 2014 to Mar 2015 01-Aug-17 – – –
New employers Apr 2015 to Dec 2015 01-Oct-17 – – –
New employers Jan 2016 to Sep 2016 01-Nov-17 – – –
New employers Oct 2016 to Jun 2017 01-Jan-18 – – –
New employers Jul 2017 to Sep 2017 01-Feb-18 – – –
New employers Oct 2017 Immediate duty – – –
     
Source: The Department for Work and Pensions    

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