Auto-enrolment has been with us for nearly three years now, but the story is really just beginning. Between 2016 and 2017, over 1.3 million employers like you will reach their auto-enrolment staging date – the deadline by which they must be able to provide a pension scheme to any qualifying worker in their business.
We have outlined below some of the key considerations for employers wanting to remain fully compliant and in control of their ongoing obligations:
- Control your communications: Don’t forget to undertake a regular review of your auto-enrolment and pension-related employee communications. The earnings thresholds for auto-enrolment change annually and this must be reflected in all statutory communications.
- Tackle your tax-relief issues: If you implemented a master trust-based pension as part of your auto-enrolment obligations, your lower-paid employees may not be receiving the tax relief that you think they are. Such schemes usually operate on a net pay basis, meaning that contributions are taken from gross earnings but are not grossed up. Those earning between the auto-enrolment threshold of £10,000 and the personal allowance of £10,600 will therefore receive no tax relief and, when the personal allowance increases, the issue will be further accentuated unless there’s any change in the threshold. A review of your scheme arrangements could be helpful to assess the potential impact of this and explore how the issue should be communicated to employees to manage their expectations.
- Process, process, process: In the rush to meet staging dates, many employers were forced to implement manual processes or use IT solutions that didn’t join up the processes for them. Furthermore, new legislative easements have been introduced, which may mean you are undertaking processes that are no longer required, such as re-enrolling workers that recently left active membership, or enrolling workers with fixed protection.
- Reinforce your record keeping: Auto-enrolment requires a clear audit-trail of activities that demonstrates fulfilment of your legal obligations to your workforce. Evidence of this could be requested by the Pensions Regulator at any time. Take time to ensure accountabilities within your organisation are clear, that the statutory records are being maintained and that they are available on request.
- Embrace freedom: The new pension freedoms allow pensioners complete control over their pension savings pots. As an employer, you are responsible for ensuring that your workforce know where they can go for guidance on their retirement options. You should ensure you are signposting the new Pension Wise service in all relevant communications to comply with the law and protect workers from pension scams.
- Don’t get caught by default faults: With so much new freedom available at retirement, auto-enrolment default funds may no longer meet the needs of active members. Automatic de-risking strategies, known as ‘lifestyle funds’, which have pre-determined risk reduction ‘glide paths’ could impede performance and be detrimental to those that want to keep some or all of their pot invested as they retire. A review of your scheme’s default fund and related employee communications is a must.
- Go for gold with governance: The pension regulator recommends a series of best practice steps for employers in order to ensure that their schemes remain fit for purpose and enable good member outcomes. Employers who adopt a robust governance strategy will benefit from knowing that their workers can retire in a timely way, when and how they want, rather than ‘retiring at their desks’ because they can’t afford to stop working. A small investment of time in such a strategy will improve the financial prospects of workers in the scheme, and will positively impact your organisation’s succession-planning and continuing compliance with the rules.
- Obey your lifetime commitments: With the latest reduction to the pension lifetime allowance, more employees risk large tax bills for accumulating pension pots in excess of this limit. What’s more – a quirk in the legislation means many group life assurance schemes also count towards the lifetime allowance. Employers should therefore consider the structure of their pension contributions and the trust arrangements in place for any death in service benefits.
We hope that you find these points a useful reminder. If you believe that you require support with auto-enrolment, or any pension or benefit-related matter, please contact your usual RSM adviser who will be delighted to assist you. Alternatively, if you don’t have an adviser and wish for us to contact you, please complete your details here.