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The shutters are coming down

Glynn Jones of the LEBC Group warns early action is required to avoid pension auto-enrolment pitfalls.

 

The biggest shake-up of workplace pensions for decades is well on its way, following the Government’s decision to introduce compulsory workplace pensions. Since October last year, a rapidly growing number of employers have had to implement new systems and processes, to ensure they meet rigorous auto-enrolment obligations. There is no escaping for smaller companies, with all employers expected to fall into line by April 2017.

The auto-enrolment deadlines, dubbed staging dates, are based on the number of eligible employees. By January 2014, companies employing 350-499 staff must offer the option of a workplace pension and further staging dates for those with fewer staff will follow in quick succession.

Auto-enrolment is complicated and requires a lot of thinking through. The penalties are hefty and it is important to allow plenty of time – the Government has suggested at least 18 months. While auto-enrolment will have a significant impact on many employees’ retirement options, organisations must make sure they understand how the changes may affect any existing pension schemes and the business itself, as well as the compliance challenges and the role of individual departments, such as payroll.

One employer in the blinds and shutter industry that has already taken steps to address auto-enrolment is Louvolite. The Cheshire-headquartered company, which employs some 350 staff and exports to more than 100 countries, already had a number of pension arrangements in place. These included a paid up contracted in money purchase scheme, a group stakeholder for weekly paid staff, as well as a group personal pension for monthly paid staff.

In the countdown to the company’s staging date, LEBC Group has been working with Louvolite’s HR and finance teams to deliver a tailored solution that meets both the company’s ethos and unique employment profile, while safeguarding regulatory compliance. This process has seen the development and implementation of Louvolite’s auto-enrolment business plan, the agreement on the conditions for auto-enrolment; the implementation of robust systems to manage auto-enrolment responsibilities; and the all-important staff communications programme, which has seen the LEBC team present the agreed auto-enrolment strategy to the company’s employees. Significantly, as a result of the review, the company has also been successful in winding-up its contracted in money purchase scheme and rationalising the group stakeholder and group personal pension into one scheme.

To employers across the blinds and shutters industry, satisfying all auto-enrolment legislation will mean significant ongoing compliance and governance obligations. Recognising these challenges, the Government has launched a consultation to simplify ‘those irritating regulations that do not need to be there or are not very clear can be ironed out’.

Getting to grips with the new regime

With the findings of the review not due until mid-2014, employers should plan to fulfil responsibilities based on the current duties. These include:

  • Provide all workers with information about their new pension rights
  • Automatically enrol eligible jobholders into a qualifying scheme, which must have a default investment option
  • Put into a qualifying scheme non-eligible jobholders who decide to opt in
  • Those employees who are not entitled to be auto-enrolled must be given the opportunity to join a scheme
  • Advise all those who have been automatically enrolled they have the right to opt out but not to be seen to inducing employees not to join
  • Refund contributions to those who have decided to opt out
  • Register the qualifying scheme with The Pensions Regulator
  • Automatically enrol those employees who have previously decided to opt out (every three years)
  • Re-register the scheme every three years
  • Keep records of all aspects of auto-enrolment, both at scheme and member level.

This is substantial list of requirements and the Pensions Regulator – responsible for overseeing the new regime – has made it clear that it expects to work with employers at first, to educate where needed, but enforce where necessary.

While employers must ensure they have a system in place to deduct contributions it is important to remember that auto-enrolment is not a pension issue but one of compliance. The rules will have to be complied with infinitely, or until government changes the rules, irrespective of whether any pension contributions are made.

Safeguarding compliance

The first decision facing employers is whether or not to take advice. While cutting costs by going it alone may look attractive at first sight, it does not offer the option of sharing some of the non-compliance risks with a regulated financial adviser.

Whatever the strategy, to reduce the chance of running out of time, it is important to create a plan and consider the costs. While the legal framework and guidance available to employers will continue to evolve, employers should now start reviewing employment contracts, as there may be potential issues relating to contracts, agency workers and ‘consultants’. At the same time, existing employee benefits and pension arrangements should be assessed. For example, can these be changed to fit the company’s auto-enrolment needs? Will the existing pension provider offer any help in managing the new regulatory aspects? The impact on payroll processing could be substantial, so it is important to check preparedness of the internal payroll team or outsourced provider. In some cases, the current payroll or pension provider systems could fall short, with independent solutions available that will smooth auto-enrolment compliance. Importantly, some of these will provide the flexibility required to handle multiple payrolls and pension providers. A further option could be to devolve responsibility for the default investment option to the pension provider or a specialist independent pension and employee benefits adviser.

The new pension regime requires long term commitment, expertise and resources. It is a commitment for life and must continue to be managed to ensure the scheme remains of sufficient quality and that the default investment strategy remains appropriate. Allowing plenty of time ahead of the staging date will go a long way in ensuring the complexities and costs of auto-enrolment are managed effectively.

Glynn Jones is divisional director of Group Savings & Investments with LEBC Group

 

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