2017: The Year of UK Pension Auto Enrolment for Small Businesses
By Scott Biggart, Compensation and Benefits Consultant, Radius
The UK government’s pension automatic enrolment legislation continues to roll out on schedule. As we noted in a guide on the subject, auto enrolment is the biggest regulatory change to UK workplace pensions in a generation. It demands that all UK employers implement a pension plan that is compliant with the legislation by early 2018. (The rollout has been staggered based on employer size, and all larger UK employers have already reached their staging deadlines.) All compliant plans must automatically enroll employees, with mandatory minimum contributions from employers and employees.
My colleague Martin Irwin has already written an excellent post on automatic enrolment, and I won’t repeat here all the information and advice he covered. (Needless to say, I urge you to read that post and the automatic enrolment guide I mentioned if you haven’t already.) Given the importance of the subject, however, and the fact that the automatic enrolment law will affect nearly a million UK employers this calendar year, it’s worth reiterating some of the main points we’ve covered and adding a few more considerations.
First and perhaps most critically: Automatic enrolment is now officially a reality for most UK employers, not a distant obligation they can afford to plan for later. A UK Pensions Regulator forecast published six months ago shows that the overwhelming majority of UK employers will reach their respective staging deadlines starting in calendar year 2017.
2017 is, in short, the year when all small (5-49 staff) and micro (1-4 staff) UK employers will have to comply with automatic enrolment legislation. The Pensions Regulator forecasts that between January and December 2017, more than 800,000 employers will reach their staging dates; that’s more than double the number that reached their deadlines in 2016. It is the employer’s responsibility for ensuring they meet their legal duties regarding pensions, and any business missing its staging date will run the risk of being fined.
One fact that’s often lost on employers struggling to comply with the legislation is that they will need to deploy a communication strategy to explain the changes to their employees. Radius’ own automatic enrolment guide can be an excellent source of information when drafting your communications. Employers should also consult the UK Pensions Regulator website. That site includes a section called Communicating with Your Scheme Members, which lists key points to address in communications and has a useful guide on what kinds of conversations employers should expect to have with their staff about the new requirements. Once drafted and approved, an employer’s communication strategy should be implemented as soon as possible.
As well as briefing employees, companies also need to ensure that their payroll processes can support the new legislation and that new starters are enrolled in the pension scheme as soon as they join the business. With so many small businesses offering pension schemes for the first time through auto enrolment, 2017 is set to become a key year in the government's drive to modernize the way firms of this size manage payroll and accounts.
Given the increasing volume of UK employers implementing pension plans, plan providers are struggling to meet demand. It is already becoming apparent this year that financial advisers and pension providers are feeling the pressure, and many are pushing out turnaround times on their services and agreements. In lieu of finding a private provider, many UK businesses — particularly SMEs who won’t have the collective pension contributions to attract providers — will have to avail themselves of the government-backed National Employment Savings Trust (NEST) pension scheme.
Martin Irwin’s post on auto enrolment is particularly good on the NEST scheme and also highlights some of the pitfalls that many employers, large and small, encounter when using it. These pitfalls can be avoided if employers allow themselves plenty of time to plan and set up a scheme.
In short, UK businesses that haven’t reached their staging dates can no longer afford to put off planning. Developing and implementing an employee-communication strategy and engaging with a plan provider as soon as possible are absolutely critical to minimizing risks and reducing the stress and hassle that come from ignoring deadlines until the last minute.