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Are you ready for auto-enrolment of pensions?

Employers need to prepare for 11 million people in the UK requiring pension contributions due to the new law on auto-enrolment. And, despite predictions that there will be a large opt out rate from auto-enrolment, a recent study published by the Department for Work and Pensions (DWP) revealed that 70 per cent of employees will remain in a pension scheme and begin saving for retirement under the auto-enrolment system.
Do not underestimate the administrative burden of complying with the pension reforms, warns Mike Jenkins, business development manager at Welplan Pensions. Now is the time to beat the rush and choose a qualifying workplace pension scheme to ease the strain, he says.

Last October, the biggest change to UK workplace pensions in more than 100 years took place with the start of auto-enrolment. The first staging date was October 1, 2012 for employers with 120,000 employees or more. November saw the second wave of auto-enrolment and this January saw the third wave - with employers of 30,000 to 49,999 employees automatically enrolling eligible jobholders into a company pension scheme.

Over the next five years, every employer must automatically enrol every eligible jobholder into a qualifying workplace pension scheme and make contributions. Eligible jobholders include UK workers aged between 22 years old and the state pension age who earn more than £8,105 per annum for the 2012/13 tax year.

Eager to keep pension
Initially, it was believed that many employees would opt out of the new workplace pension schemes, but recent research from the Department for Work and Pensions (DWP) revealed that most people are eager to stay in a pension arrangement for as long as they are eligible to do so.

Now that auto-enrolment is well and truly part of the pension landscape, surely employers have got the requirements all sewn up? Well, unfortunately, not quite. Many businesses are only just grappling with the details of auto-enrolment or still have it parked down the priority list.

In a recent report by the Chartered Institute of Personnel and Development (CIPD), 20 per cent of businesses said they had no intention of looking at the impact of auto-enrolment on their operations. However, in such difficult financial times, it is essential that employers look at their pension responsibilities now and consider the processes and financial planning that need to be implemented in order to be ready for auto-enrolment at their staging date.

It is simply not enough for companies to be aware of their individual staging date. The administration involved in complying with the reforms - preparing for and implementing automatic enrolment to cover all eligible employees, as and when they become eligible, in an industry populated with contractors and part-timers - is extensive.

According to research by Jelf Employee Benefits, only one in three small and medium-sized (SME) respondents is ready for auto-enrolment ahead of their staging date. The Pensions Regulator chief executive Bill Galvi said: 'The worst case scenario would be employers not preparing on time, not being ready for their duty dates and having to do a whole heap of work to try to get their employees sorted in terms of their pensions and having to deal with the consequences of not getting things in place in time.'

It is also beneficial for employers to examine how they can turn auto-enrolment costs into an investment that will bring a return to the organisation in the form of higher employee engagement, as well as aligning their pension scheme with the organisation's business strategy, brand and culture.

With ever changing goalposts, it is hard for employers to keep on top of the auto-enrolment requirements. For example, in his Autumn Statement, Chancellor George Osborne announced that from the 2013/14 tax year the earnings threshold for inclusion in auto-enrolment will increase in line with changes to the personal allowance for taxation. Currently, staff must earn at least £8,105 to be auto-enrolled into a workplace pension, but when the personal allowance is raised to £9,440 this April, the earnings threshold will also be increased to this amount.
Planning for auto-enrolment now, and selecting a pension that will keep an eye on the market and make certain you are up to date with developments, will ensure you comply with the legislation at your staging date.

Failure to meet your staging date can lead to costly consequences. In the first instance, the Pensions Regulator will issue a notice requiring the employer to comply. If this is ignored, there will be a fixed penalty of £400 and, if the business continues not to comply with the auto-enrolment requirements, a daily fine may be imposed on serious, prolonged or repeated breaches - £50 per day for employers with one to four employees, rising to £10,000 per day for employers with more than 500 workers.

Employers must choose a qualifying workplace pension scheme that meets all the auto-enrolment requirements and fits the business's needs. Even employers that already auto-enrol staff may need different processes to comply with the legislation. Companies may be best served by a qualifying scheme provider that would not only manage the scheme but also keep the company up to date with any changes in the auto-enrolment requirements.

// For more information on Welplan Pensions, call 0800 1958080 or visit www.welplan.co.uk/pensions //

12 February 2013

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