The clock is ticking on auto-enrolment
When Charles Counsell, Executive Director of Automatic Enrolment at The Pensions Regulator (TPR), was awarded an OBE for his services to workplace pension reform in the 2017 New Year honours list, it may have suggested that getting more people to save for their retirement was a fait accompli.
In reality, the toughest challenges are still to come as more than a million SMEs and microbusinesses are about to go through the process of setting up and enrolling staff into workplace pension schemes this year.
The task ahead remains both “ambitious and challenging” but Charles is bullish about the likely success of TPR’s programme to ensure employers meet their pension duties, and its ambition to reverse the worrying trend of under-saving for retirement among workers.
Under the workplace pensions law, all businesses must enrol eligible workers into a qualifying workplace pension scheme by April 2017. Employers then need to repeat the auto-enrolment process approximately every three years.
Like individuals, there are those who are organised and will get on with things, but there are also some who will leave things to the last minute.
In the four years since auto-enrolment was launched, compliance rates among small and micro-employers are at the top end of even TPR’s expectations.
This, they said, is thanks to the effectiveness of communications to employers, awareness-raising with trade associations and business networks, and the 'Workie' national advertising campaign in partnership with the Department for Work and Pensions.
Two-thirds of all employees are now active members of a pension scheme and saving for retirement is becoming the social norm. However, experts warn that the combination of a lack of financial clout, the absence of in-house expertise and a large pinch of apathy among the UK’s smallest companies should not be underestimated.
A recent survey by YouGov found more than half of small and micro-businesses felt auto-enrolment would be a burden and two-fifths said it was unfair.
Charles said: “Small employers often behave like individuals and not like businesses. Like individuals, there are those who are organised and will get on with things, but there are also some who will leave things to the last minute.”
TPR has worked hard to simplify the auto-enrolment process; its website includes an online duties checker that asks simple questions to help employers establish what duties apply to them and determine which journey to compliance they should be on.
However, David Davison, a Director at pensions consultant Spence & Partners and a member of the ICAS Pensions Committee, warned that scheme choice is reducing as pensions providers get more selective about who they work with.
The proof of the pudding will be what happens when employee contribution rates start to increase.
Accountants already offering payroll services are well placed to talk clients through the mechanics of the new regime. They can add value in translating the different definitions of earnings that can be used in contributions calculations, identifying which staff are eligible to be enrolled and helping clients communicate the new rules to employees.
Automation is also key to getting through the impending 'capacity crunch', but software for auto-enrolment remains a moot point. Firms should review their payroll software to make sure it has auto-enrolment functionality.
For those businesses that have already set up workplace schemes, the auto-enrolment journey is just beginning. In October 2017, contributions rates increase from a minimum of 2% overall to a minimum of 5% overall with at least 2% from the employer. They will increase again in October 2018 to a minimum of 8% total with at least 3% from employers.
Questions remain over what impact increased contribution levels will have on opt-out rates. “Opt-out rates have been relatively low at 10%. However, the proof of the pudding will be what happens when employee contribution rates start to increase,” commented Christine Scott, Assistant Director of Charities and Pensions at ICAS.
A government review of auto-enrolment will this year examine how the policy might be expanded to ensure even more people save for their retirement, in particular, the UK’s swelling ranks of the self-employed and those falling below the £10,000 earnings threshold for auto-enrolment.
Read the full version of this article in the March 2017 edition of CA magazine.