Recent figures compiled by NEST (National Employment Savings Trust) in 2014 show that 63 per cent of companies have found Automatic Enrolment more difficult than they had anticipated. This figure is likely to rise, as the deadline for small businesses to activate their Automatic Enrolment plans arrives in July of this year.
Many smaller companies are finding that Automatic Enrolment is more time-consuming and expensive than they had imagined. And many are leaving the process very late, either because they wrongly believe that they’re not liable to participate in the scheme or because they’re still unaware of their responsibilities under Automatic Enrolment.
A business process revolution
There is far more to the process than the enrolment itself. As Scottish Life development manager Jamie Clark said in an article on Auto Enrolment, published in moneymarketing.co.uk: “Automatic Enrolment is not really about pensions, it’s about business planning.”
He argues that the processes and contracts of employment have had to change, in response to the new regulations, which has placed far more burdens on employers than the enrolment itself. This may seem daunting, but with the technology and the support that exists today, SMEs don’t need to be lumbered with the added burden.
Ideally businesses should start to prepare at least six to 12 months before their staging dates in order to have the business processes set up and in place. Software can do much of the heavy lifting through payroll and pensions administration solutions, but these are two separate business processes creating twice the work for the employer.
Success for a business is being able to bring pensions and payroll into one entity. The magic happens when the two integrate so seamlessly the payroll process does not miss a beat, turning a very complicated process into something very simple.
Although early preparation is key, there’s another issue small businesses must consider: there is no guarantee the first pension provider they approach will take them on, even if they have an existing pension scheme with them.
Finding the right provider for your business
There are fears of a ‘capacity crunch’, as an estimated 30,000 small businesses line up to start enrolling their employees in the next few months. Instead of just one contribution scheme being set up every three hours, as has been happening in recent months and years, it’s estimated that this rate will accelerate to one every six minutes.
This crunch may take the form of administrative stress among those offices carrying out the work, but it could also involve the pensions providers themselves, who may be reluctant to take on some of this new business.
The larger providers “are not necessarily geared to dealing with smaller companies,” says Garry Crackle, sales and implementations manager at Source Pensions. “A number have indicated they will be monitoring the market and may be forced to close their doors to Automatic Enrolment later this year or next year if they don’t have the capacity.”
This could prove a headache not only for SMEs but for the government, which had clearly assumed that the pensions industry would be willing to accept this glut of new business.
It could come down to the level of the proposed pension charges cap: too low, and some providers might walk away and look for more profitable opportunities elsewhere. Some providers are already said to be ‘cherry picking’ their clients, unwilling to cover businesses that are too small or where there are complex needs.
Like any major shift in financial practice, moving to Automatic Enrolment was always going to involve some teething problems.
The Centre for Economic Business Research has estimated that there are 33 different administrative tasks that must be undertaken before reaching the Automatic Enrolment staging point, which will take around 103 days’ work to achieve.
It all adds up to a considerable financial and administrative burden for SMEs. But as the UK faces up to a future with an ageing population trying to live on an insufficient state pension, these are important steps in securing the national workforce’s wellbeing.
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More about an integrated solution that does both and speaks to pension providers. Sage 50 Payroll: Auto Enrolment Edition will provide all the knowledge, tools and resources your business needs.