Re-enrolment and how to avoid Groundhog Day
Despite the predicted impact of auto-enrolment, many employers were far too slow to prepare.
Anecdotally, this could have been because word had spread about postponement and had mistakenly led many companies to believe they had three months longer to prepare than they did. The old adage that a little knowledge is a dangerous thing rang all too true. It could also have been because some, perhaps, underestimated the scale of the operation. The difficulties faced by companies in ensuring a compliant process in harmony with incumbent systems became exacerbated by an already stretched industry and many failed to cope.
Auto-enrolment has been a hugely successful venture in getting more people into pensions and saving for retirement with more than 6.1 million employees automatically enrolled since 2012. Although many schemes privately admitted they never wanted to go through an experience like auto-enrolment ever again, this was unfortunately never going to be quite as straightforward.
Whilst the first schemes that went through auto-enrolment were well resourced to cope with these new and complex demands, the next tranche of smaller employers faced auto-enrolment less well equipped. Three years can pass in the blink of an eye and those same companies that decided to postpone their Staging Date are now approaching the three year anniversary and thus, their triennial re-enrolment date. Once again, companies are aware that they are able to postpone their re-enrolment date by up to three months, yet the implications of this seem far less understood. Could this lead to an auto-enrolment Groundhog Day?
Although this is the first repetition, we know the consequences of inaction. Just recently, Swindon Town Football Club was fined £22,900 for a series of non-compliance and the Pensions Regulator (tPR) issued an extra £350k in auto-enrolment fines. The Regulator also issued its Compliance and Enforcement Strategy in June 2016 giving clear sight of the repercussions employers can expect.
Despite a public dressing down for smaller employers, it doesn’t seem as though heed has been taken. A recent analysis of TPR’s data suggests that UK micro businesses only have a limited understanding of their upcoming employer duties.
Something you would expect to be a simple question with larger employers though is engendering frequently incorrect answers as the common assumption of what three months means does not tally with the legislation.
A company with a Staging Date of 1 January 2014 for example, will have their three-year anniversary on 1 January 2017. Should they wish to move this date, the latest they can move it to is 31 March 2017 and not, as is commonly assumed, 1 April 2017. For many companies, this date will not fall on the first day of their pay reference period and so will not be convenient for their existing processes.
The worry then is that the same companies that leave it late to consider re-enrolment will be those most likely to wish to move their re-enrolment date back. This in turn means that they will have a shorter timeframe to amend their current systems and processes and ensure compliance.
When you think about all of the other practical aspects of re-enrolment (such as communications, contract considerations and re-declaring compliance with the Pensions Regulator), the potential for companies to find themselves in trouble is all too real.
Since auto-enrolment was first rolled out, there have been a number of seismic shifts in the pensions landscape with Freedom & Choice, changes in the Annual Allowance and amendments to the Employer Duties legislation itself now meaning that the solution put in place three years ago could look very different to what a company would choose now. Many companies that staged early are taking the opportunity of re-enrolment to take stock and review their solution, often finding a more optimal approach than the status quo.
Far from ticking a box, re-enrolment requires careful consideration from companies. It is easy to think that because fewer employees are affected that the importance of the project is lessened. Experience is already telling us that this is not the case. The employee population that opted-out previously are a very particular subsection of your workforce. The reasons for opting out can vary – it could be down to affordability, that people fundamentally don’t believe in pensions, a lack of appreciation of the benefit that pensions can bring, to reasons of Fixed Protection amongst a small but highly influential section of high-earners. Addressing these issues requires a careful and well administered communication and education programme to keep these employees suitably informed. The introduction of the Lifetime ISA could also present new dilemmas to younger people prioritising saving towards a first home than saving for retirement.
With all the best will in the world, there may still be some employers that come to understand their re-enrolment requirements very late in the day. Here the focus should squarely be on compliance with the legislation. Companies will need to at the very least identify the population to be re-enrolled and auto-enrol them in a very similar way to any employee that is being auto-enrolled for the first time. Declaring compliance with the Pensions Regulator is usually the last step in the process and has a deadline of five months after the three-year anniversary of Staging Date (at time of writing).
It is crucial not to underestimate the task at hand with re-enrolment exercises and understand that these employer duties didn’t simply end with auto-enrolment. Employers who put together a sound plan and give themselves enough time to implement that plan will put themselves in a far better position to ensure re-enrolment goes as smoothly as possible.
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