Business Breakfast: Countdown to auto-enrolment
For some businesses, auto-enrolment is already under way; for others, it is looming on the horizon. At The Caterer's second Business Breakfast on the subject, pensions experts walked delegates through what needs to be done before their staging dates. Tom Vaughan reports
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Whether it is a dot on the horizon or a looming presence, auto-enrolment can seem a daunting, time-consuming and expensive task. Russell Davidson, managing director of Davidson Asset Management, broke the process down into eight manageable steps:
1 Identify your staging date Your staging date, which is decided by your payroll size as of April 2012, is your deadline for auto-enrolment. Those with 90 or more employees will have staged in May 2014, while those with 49 or below will have been assigned a date between June 2015 and April 2017. If you don't know, you can check your staging date online with your PAYE reference at the Pension Regulator's website.
However, said Davidson, most companies he works with are taking up the option to postpone their staging date by three months. While this is a worthwhile option to consider, don't think of it as an excuse for procrastination.
"The Regulator would like to see you have all your systems in place by your staging date, but if you need to fine-tune it, you can postpone. Remember that employees can opt-in to auto-enrolment from your staging date, so if you don't have your systems in place it could put you in a dilemma."
2 Plan Early planning is vital, said Davidson, and he presented a timeframe for the run-up to auto-enrolment (see panel). This may seem daunting, but those close to their staging date needn't panic.
"We have seen people come to us needing help a month from their staging date and on their staging date. A lot of small businesses are focused on making sure the business runs smoothly and a staging date can creep up. It's not ideal to come to us a month before, but it can be done."
3 Open a dialogue with your payroll provider
Your payroll must be compatible with auto-enrolment requirements, explained Davidson and, ideally, it should have an automated exchange of data with your pension system.
With each employee requiring between 32 and 36 fields of data, it's important to begin dialogue with your payroll provider early to work out what data you should be collecting.
4 Cleanse your data This is a crucial but often ignored piece in the jigsaw. Employee data must be complete and up to date. Employee information the Pension Regulator may request can include date of birth, gross qualifying earnings, NI numbers and auto-enrolment date.
5 Assess your workforce
And don't expect the opt-out rate to be huge: "We did think there would be a high opt-out rate, but it is actually between 8% and 10%, which is a lot lower than some finance directors thought," said Davidson.
"It is quite a staggering figure. Why is it so low? There are lots of young people in hospitality and it was thought that they would opt-out, but actually it is those closer to retirement age who are choosing not to go ahead."
6 Budget Early budgeting is essential: "We recommend you flesh out the auto-enrolment figures early on as it comes off the bottom line in most cases," said Davidson.
"There are the costs of administration - will your payroll provider charge you extra? Do you need advisers? How much of your own time are you going to need to spend?"
Then you need to choose from the three definitions of earnings, although by far the most popular is the qualifying earnings, which in 90% of cases is the cheapest.
7 Assess your pension provider "A lot of pension providers do not want to get involved as it is very low margin," Davidson said. "However, a few companies
are specialising in it." The three providers offering dedicated auto-enrolment solutions are the National Employment Savings Trust, Now: Pensions and The People's Pension.
8 Find quality adviser support "If you have a good adviser on board, use them; if you don't, think about it, because it can make things a lot easier," said Davidson. "Don't try and do it all yourself - pick up the phone and talk. What software should you be using? What pension provider? You can save time and it can make all the difference."
Pensions timeline
12-14 months •Identify payroll and/or HR resources
•Check employment contracts
•Review existing pension arrangements
•Assign key responsibilities
•Check your business software can support auto-enrolment
7-11 months •Decide which auto-enrolment software and scheme you will use
•Establish contribution costs
•Data cleanse (detect and correct inaccurate records)
•Agree the method of employee communications
4-6 months
•Agree a postponement period
•Start employee communications
•Test auto-enrolment software
3-4 months •Implement postponement and opt-out processes
• Ensure auto-enrolment software works in parallel with payroll processes
Staging date and ongoing •Communicate with workers
•Process opt-outs
•Manage refunds
•Register the scheme with the Pensions Regulator
•Monitor ages and earnings
•Assess new starters
How the Dorchester Collection did it
With 1,100 employees across three UK hotels, the Dorchester Collection's auto-enrolment was never going to be straightforward, explains Sean Wheeler, area director of human resources.
It's staging date was October 2013, and the first thing the team did was to close the final salary scheme. Even though it was a very attractive salary sacrifice scheme, there had been very low take-up over the years - although this changed once employees realised it was to be discontinued. "Once we decided to close it, it was amazing how many people were all of a sudden interested in it," Wheeler said.
Twelve months before the staging date, after taking some advice from larger hotel groups such as Hilton, the next thing that Wheeler and his team had to do was find a good provider.
"We liked The People's Pension. It's flexible, the messaging was easy with our multicultural workforce and there was a simplicity about it."
As with everyone else, the Dorchester made a high assumption about opt-outs, thinking that as many as 25% would take the option, but in reality only 5% did -a figure that is getting lower. Wheeler also opted for band earnings as a calculation basis: "It was by far the easiest and simplest to calculate," said Wheeler.
With People's Pension on board, the next task was to get the payroll system ready. The internal communications were a vital part of auto-enrolment, explained Wheeler.
"We had a big campaign to get employees to join our existing Aviva scheme, which is now closed to new starters. Then we launched auto-enrolment at quarterly meetings, with posters back of house, in our internal newsletter and with People's Pension videos. However, the easiest way was to use a texting system - everyone reads their text messages.
"Even with all of this and a 'go live' countdown in newsletters we still could have done more. A lot of people still came to us after we'd staged and asked
us what the 1% was on their payslip."
Now, 987 of the Dorchester Collection's 1,100 employees are in a pension scheme, with 594 in the auto-enrolment scheme. There have been 57 opt-outs at the rate of about five a month. However, when auto-enrolment goes up to 2-3%, Wheeler is sure there will need to be another round of communications.
"Until it starts taking money out of their pockets, people really don't think about it," he says.
