SMEs must do something and do it now as fears of a capacity crunch looms over auto-enrolment

Between now and the end of 2018, an unprecedented number of businesses across the UK will be expected to put in place pension schemes to address the Auto-enrolment Legislation. There are genuine concerns that capacity, particularly at peak times, will not meet demand and it is feared that capacity issues could lead to providers bringing down the shutters, reducing ancillary services and cherry-picking new clients.

In 2014 approximately 34,000 businesses with 50 to 249 employees had to confirm that they have a compliant pension scheme for Auto-enrolment. However, many SMEs may struggle to find a pension provider willing to work with them. One of the markets leading pension providers is already stating that they will not accept any more Auto-enrolment schemes without a long lead time. This will become increasingly common across the sector, resulting in failure for many businesses to find a provider. SMEs that leave staging until the last minute will face the capacity crunch and possibility of a series of hefty fines. 

Now for the numbers…

So, how big is the overall Auto-enrolment staging project the Government has set UK Plc and why is there such a sense of urgency? Last year 34,000 businesses reached their Staging Date, which was approximately the same number of company schemes Standard Life has dealt with in total since the early 1970s. In the 2015/16 tax year approx. 153,000 small and micro businesses employing less that 50 people will need to stage, with nearly 617,000 similar sized employers in the following tax year. In 2017/2018 new employers in the market are expected to total 533,000 which amounts to just under 1.4m businesses expected to stage their pension scheme in the next few years. It is clear that the SME sector will struggle to comply in the time left to complete such an enormous task.

What’s next…?

Complying with the Auto-enrolment legislation is by no means a simple matter and choosing a pension provider is not straightforward. Many responsibilities, such as planning, testing and implementation ahead of the deadline required, all typically need to be addressed in the six months ahead of each employer’s deadline. 

So do something and do it now!

Due to the economies of scale, many SMEs will not have the infrastructure to manage the Auto-enrolment process on their own. For many small ‘owner manager’ businesses, tackling Auto-enrolment is outside of their comfort zone and depending upon outsourced help and advice will be key. Again this issue may cause delays in staging and if left unchecked for too long may leave the employer open to warnings from The Pensions Regulator and hefty follow-up fines. 

Seeking professional assistance is crucial so start making enquiries as there is not a moment to spare. The best advice businesses can absorb is do something and do it now otherwise you could be left out in the cold with The Pensions Regulator for company and face a hefty penalty fine.

At  the EB Partnership we have helped clients ranging from 5 employees and up and have devised a cost effective solution that will take some of the pain away. Please email neil.morrow@theebpartnership.co.uk for details

Decisions of a Director…

There I was wondering what to Blog about this week, when the post delivered a letter from The Pension Regulator informing us that our Staging Date for Auto-enrolment is 1st Sept 2017. Even for a company such as ours working in financial services, we still have to make sure we meet our obligations and of course communicate the benefits to our employees. But what should we do?

While younger employees might prefer the extra cash, the older ones probably appreciate the pension contributions more. This got me thinking about the responsibilities of employers to do the right thing which may not be popular among employees in the short term. Will the employers ever get the appreciation from the employees to justify the additional costs of providing a ‘good’ pension?  Or should the warm feeling that comes with knowing that you have done the right thing be sufficient?  Alternatively we could do the bare minimum and put the savings towards the next employee celebration.

Whatever we decide to do, I can be certain that we will be communicating the benefits to our employees.  I want to make sure that they understand the benefits of the company pension, their options and I will also take the trouble to explain why the company came to its decision.

A benefits communication platform like BORIS can’t make the decisions for you, but for £1 per employee per month it will help you to make sure your employees are kept informed and know the value of all the benefits you provide!

Market apathy over auto-enrolment is set to rise

Market apathy continues following an industry appraisal of the UK business markets attitude to Auto-enrolment and how employers should be thinking regarding their future obligations. Currently the entire SME market sector is in a state of total denial, choosing to ignore the requirement which in itself is quite frightening.

It appears that the larger firms are committed to their staging dates and appear to be on track. It is the SME’s and predominantly the Medium sized firms in this community that are in a state of apathy over the whole process.

““Most traditional workplace pensions were set up on a voluntarily basis and had the buy-in from key departments such as finance, human resources and payroll. We are now moving into an era where most plans are being set up to deal with a statutory responsibility and it is unrealistic to expect every one of those departments (who may all be the same person, in some businesses) to treat Auto-enrolment with an equal amount of urgency and enthusiasm.””

— Neil Morrow

Why is this? Is Auto-enrolment seen as a poisoned chalice? Do many of the business owners in the small and medium-sized enterprise sector (those that should be staging right now) really not care about Auto-enrolment. They may have glanced at the letter from The Pensions Regulator or had a brief chat with their accountant, but in the main it is nowhere near the top of their ‘to do’ list, even if they are due to stage in a matter of months.

While most businesses understand the need to comply with Auto-enrolment, a large proportion of the UK’s SMEs are not engaging with the problem. In fact research we carried out in October 2013 showed 49.6% of employers still do not understand what Auto-enrolment is and 88.6% of those due to stage within 12 months have not started preparations.

Standard Life recently stated that it was seeing on a small fraction of the business they anticipated at this stage in terms of the number of companies staging at this year.

Budget 2014 - Who benefits from Osborne's savings revolution ... and what is the impact on Auto-enrolment pension schemes?

It is safe to say that the announcements' around pensions and savings flexibility that George Osborne made yesterday have come as a surprise to all of us!

George Osborne has completely revolutionised the way pensions work; millions of people have just found their pensions savings have turned into a tax efficient bank account. The punitive 55 per cent tax rate they faced if taking out more than they should from a pension has been abolished and the regular withdrawal allowed from a pension has increased by a staggering 25%.

Is this more of a political move than financial? 'It's a matter for people to choose how they spend their money,' said Danny Alexander afterwards - but the Treasury's forecasts assume that they will spend, spend, spend. If people can pull cash out of their pension, and only pay a normal rate of tax, HMT projects it will haul in £320 million more tax in 2014-15 rising to an almighty £1.2 billion more in tax by 2018-19 - which is fine for The Revenue in the short term but with people living longer what happens when all the individual's pension pots are spent? More reliability on the State Pension I fear.

For those pensioners who decide to plan spending their pension pot sensibly then an annuity or a limited income drawdown could still be of value.  With the promise of one year government bonds with an interest rate of 2.8% or a three year bond offering 4% (albeit on a limited offer basis), there is also a step change for older savers when you consider how low the Bank of England base rate is.

But it is not just existing pensioners who benefit. The fact that people are not forced to buy an annuity will benefit those coming up to retirement most. Those planning for retirement now have far more flexibility about how they structure their retirement. While increasing the ISA limit to £15,000 helps those trying to save up a deposit for a house or a flat.

These changes also mean that Osborne can have his cake and eat it when it comes to interest rates. He can tell mortgage holders that it is thanks to the government's fiscal policy that the Bank of England has been able to keep interest rates so low while pointing those from our more senior generations to the higher interest rates that the government is making available to them.

What's critical is that individuals continue to build a pension pot in the first instance which is why the Auto-enrolment scheme is so important. Employers, by law will have to provide a pension scheme to staff - and have everything in place quite soon - or face the financial consequences. 

And the Final thought?

This budget delivers some extremely good news for savers and those who prefer to save for themselves rather than rely on the state. However, we fear that the newfound pension flexibility will lead to a "spend now, pay for it later" mentality which will cause similar if not worse long term problems to those that individuals and the country as a whole have experienced from the explosion in credit card debt and other personal loans.

Without sound advice and a good deal of personal restraint The EB Partnership fear that the Government could be inviting a short term boost to spending at the expense of both our individual futures and those of the nation.

Auto-enrolment opt out - an option?

As an individual who has worked in Financial Services for over 20 years, I breathed a huge sigh of relief when the concept of pension’s Auto-enrolment was first introduced. Funding for retirement (using Pension schemes) has, for far too long, been something ‘to be done later’, with some serious consequences for an ever-aging population.
 
Since October 2012 employers have been required to offer a Qualifying Workplace Pension Scheme, and the greatest concern I have is for those individuals who make the choice to ‘opt out’.
 
Auto-enrolment provides a chance for people in the UK to start saving and receive a monthly contribution from their employer. Rather than something to be scorned or even afraid of, employees need to embrace the opportunity to save and accept the extra money going into their pension pot.
 
I believe that giving people the chance to opt out should be stopped. As a family man I fully appreciate the need to think about today, but actually who is going to pay for my tomorrow if I don’t? Our country continues to recover from a financial crisis and part of its recovery is by making cuts.
In embracing Auto-enrolment and investing a (relatively) small amount of money every month, the retirement life stage of a person could be significantly improved. To opt out when you are younger would be a false economy and one which can never be reversed.
 
As I made reference to earlier, life expectancy continues to rise and as a result our money must last longer. Those who do not plan their finances will discover this is an unwelcome surprise further down the line.
 
Pensions are just one of the many factors that need to be considered when planning for retirement. Pension’s Auto-enrolment brings the chance to put some money aside and have your employer be obliged to help make your fund greater. Retirement should be an enjoyable and relaxing time, without financial stress and worry.

Auto-enrolment – not guaranteed to make auto engagement!

Auto-enrolment is a massive step forward for pensions. Significant and helpful as it is, it will not address the massive pensions underfunding across the workforce, nor 'fill the pensions gap'.

In talking to some Employers who will be reaching their Staging Dates in the next 2 years, I wonder whether the impact of this Legislation has really been considered. 

The fact is there will be huge numbers of employees who have never been entitled to (or considered making) a pension contribution, and they will suddenly find themselves not only being enrolled into a scheme (which may not be the type of scheme they would have chosen for themselves) but also being required to make payments into it. This could see many employees confused by, or worse still, resentful of being forced to take part.

At the EB Partnership we have always seen communication as key in any Employee Benefits scenario, and so we would strongly recommend that when considering how to comply with this Legislation, a budget is created to allow the new pension scheme/s to be communicated to the workforce in the right way (i.e. paper based if pc access is likely to be a problem). This gives the employer the opportunity to achieve a real return on their investment spend and have it perceived as a very positive move forward, rather than risking any employee simply viewing this as a brand new form of taxation.

Auto-enrolment should be seen for what it is - a way of bringing millions of new members into saving for their own retirement for the first time. It will bring with it many challenges, but the support is out there....