Auto Enrolment is just around the corner for many small businesses. However, there still appears to be a large amount of confusion and general lack of understanding around exactly what the process entails.
This article considers 5 key pitfalls that all employers should be aware of when preparing for Auto Enrolment.
1. Leaving it too late
Perhaps the most common mistake made by employers is to underestimate the amount of time the Auto Enrolment process takes to compete. The National Employment Savings Trust (NEST) 2014 Insight report confirmed that employers due to stage in 2014 believed the process would take on average only 4 to 6 months. However, The Pensions Regulator recommends at least 12 months to prepare, and one fifth of employers interviewed for the Insight report claimed to have taken over 16 months. It is, therefore, vital that employers work out how long preparations are likely to take so that they can allocate sufficient time to work through the process.
2. Assuming you can use your existing pension scheme
Employers who currently offer a staff pension scheme often assume that Auto Enrolment is simply a case of enrolling their Eligible Job Holders into the existing scheme. Unfortunately, it's rarely as straight forward as this and as a result, many small businesses may end up having to change providers at very short notice.
3. Hoping that existing systems will be able to cope
The majority of employers overlook the impact Auto Enrolment will have on their internal systems and processes. Auto Enrolment is as much about payroll and HR issues as it is about pensions and the administrative impact on these two areas will be huge. Even employers who outsource their payroll responsibilities could be affected as not all payroll companies will be prepared or have the capacity to take on the additional administrative burden themselves.
4. The Capacity Crunch
There are signs that pension providers are struggling with the sheer volume of Auto Enrolment schemes that they're being asked to manage. A report by Towers Watson warns that providers are likely to be more selective about the companies they want to deal with and may well start to increase charges. The report also suggests that in time, some providers may be forced to close the door to new business altogether. This is often referred to as the "Capacity Crunch" and poses a serious risk to those small businesses who have yet to stage, as they may find it difficult to source a suitable pension scheme at a competitive price.
5. Believing that nothing will happen if the staging date is missed
The Pensions Regulator (TPR) is responsible for overseeing the Auto Enrolment process and has introduced strict guidelines around how and when employers must meet their duties. TPR has the power to impose significant financial penalties for non-compliance and recently issued the first set of fines to employers that failed to deliver their Auto Enrolment duties on time.
This article considers 5 key pitfalls that all employers should be aware of when preparing for Auto Enrolment.
1. Leaving it too late
Perhaps the most common mistake made by employers is to underestimate the amount of time the Auto Enrolment process takes to compete. The National Employment Savings Trust (NEST) 2014 Insight report confirmed that employers due to stage in 2014 believed the process would take on average only 4 to 6 months. However, The Pensions Regulator recommends at least 12 months to prepare, and one fifth of employers interviewed for the Insight report claimed to have taken over 16 months. It is, therefore, vital that employers work out how long preparations are likely to take so that they can allocate sufficient time to work through the process.
2. Assuming you can use your existing pension scheme
Employers who currently offer a staff pension scheme often assume that Auto Enrolment is simply a case of enrolling their Eligible Job Holders into the existing scheme. Unfortunately, it's rarely as straight forward as this and as a result, many small businesses may end up having to change providers at very short notice.
3. Hoping that existing systems will be able to cope
The majority of employers overlook the impact Auto Enrolment will have on their internal systems and processes. Auto Enrolment is as much about payroll and HR issues as it is about pensions and the administrative impact on these two areas will be huge. Even employers who outsource their payroll responsibilities could be affected as not all payroll companies will be prepared or have the capacity to take on the additional administrative burden themselves.
4. The Capacity Crunch
There are signs that pension providers are struggling with the sheer volume of Auto Enrolment schemes that they're being asked to manage. A report by Towers Watson warns that providers are likely to be more selective about the companies they want to deal with and may well start to increase charges. The report also suggests that in time, some providers may be forced to close the door to new business altogether. This is often referred to as the "Capacity Crunch" and poses a serious risk to those small businesses who have yet to stage, as they may find it difficult to source a suitable pension scheme at a competitive price.
5. Believing that nothing will happen if the staging date is missed
The Pensions Regulator (TPR) is responsible for overseeing the Auto Enrolment process and has introduced strict guidelines around how and when employers must meet their duties. TPR has the power to impose significant financial penalties for non-compliance and recently issued the first set of fines to employers that failed to deliver their Auto Enrolment duties on time.