Auto enrolment: key dos and don'ts for employers

By: Tax Donut contributor

Date: 4 February 2014

Auto enrolment: key dos and don'ts for employers/Business people saving money on the piggy bank{{}}With the one-year anniversary of the automatic enrolment pension scheme imminent, NEST (the National Employment Savings Trust) has published its top five dos and don’ts for employers, based on its insight into the challenges faced by employers who have already implemented automatic enrolment.

Tim Jones, CEO of NEST, says: “Automatic enrolment has brought a radical change to workplace pensions, but it will rapidly become the new normal. While the early stages have primarily affected large employers, the numbers of employers coming under the duties will increase dramatically in the next few months. All employers need to be prepared to meet the challenges brought by implementing automatic enrolment. NEST is already working with [more than] 1,000 employers. Our insights into their experiences have enabled us to develop some really useful dos and don’ts for employers that still need go through the automatic enrolment experience.”

Employer dos

1 Plan

Employers aren’t always leaving themselves enough time to implement automatic enrolment and may be placing unnecessary pressure on their business to meet their duties in time. Employers can register with NEST to receive countdown emails and these email reminders can help employers stay ahead of the game. Employers often assume a provider will be able to meet their automatic enrolment requirements, but this is not always the case. By starting conversations early, employers can ascertain whether they can use their existing provider or whether they need to start looking elsewhere.

2 Assess

There are three types of workers – eligible, entitled and non-eligible. By carrying out a worker assessment you can identify which category each of your workers belong to and your responsibility to them. This will make your job much easier when you need to automatically enrol your workforce.

3 Communicate

Communicate with staff clearly and early, have a communication plan and involve all relevant people within your business. By using effective communication at the start, you can save time-consuming questions later. Charles Cotton, Rewards Adviser at the Chartered Institute of Personnel and Development comments: “Our members have found that good communication has greatly reduced the number of questions they receive from workers.”

4 Examine your systems

Assess your systems – particularly payroll – to ensure they are ready and capable for your automatic enrolment needs. Karen Thomson of the Chartered Institute of Payroll Professionals says: “Automatic enrolment has required investment in payroll processes and systems, whether in-house or outsourced. The payroll function is best placed to examine the age and earnings of a workforce and determine the number of workers to be automatically enrolled. In addition, payroll can establish the date that workers become 'eligible' for contributions, calculating those contributions and managing refunds to workers who've opted out.”

5 Get help if necessary

You may need guidance from experts and external advisors. NEST has numerous tools for employers and advisers to use. Laurence Baxter, Head of Policy & Research at the Chartered Insurance Institute, comments: “Employers are not pension experts. Chartered financial planners are ideally placed to help employers to choose the right scheme. They may also provide ongoing services to help with the admin of automatic enrolment.”

Employer don’ts

Don’t fall for the following misconceptions…

1 ‘Once we’ve chosen a pension provider everything will be done for us’

The main challenges employers face are understanding how the regulations apply to them, assessing which workers are eligible and communicating changes to their workers. Not all providers can help you with these.

2 ‘There’ll be a lot of work leading up to the deadline, but then our work is done’

Once you’re up and running you’ll still have to calculate and pay regular contributions and keep assessing your workforce for anyone that needs to be automatically enrolled every pay period.

3 ‘We have to offer a pension to all staff’

Automatic enrolment doesn’t apply to everyone. Employers need to automatically enrol all workers who:

  • work or usually work in the UK
  • aren’t already a member of a workplace pension scheme
  • are aged at least 22 but below the State Pension age
  • earn more than £9,440 (this figure applies to the 2013/14 tax year and is reviewed each year by the government).

These people are known as ‘eligible jobholders’ and their employers will also have to make a minimum contribution into the pension scheme on their behalf.

4 ‘Most employees will opt out’

At the beginning of automatic enrolment, the industry anticipated an opt-out rate of about 35%, but experience so far is typically lower than 10%. This is a great success story for workers, with more workers saving for their retirement than anticipated.

5 ‘Our payroll provider will tell us what we need to do’

Karen Thomson of the CIPP adds: “Your payroll software might not do everything for you. It might assess the eligibility of workers, but it won’t tell you what your pension rules are – in fact – you must tell it what the rules are. The only way you will know what your payroll service provider will do is by asking them – don’t just assume. They might run the payroll processes, but they might not carry out all the work necessary for you to meet your automatic enrolment obligations.”

Further reading