“Automatic Enrolment doesn’t apply to me, I already offer my staff a workplace pension” – 6 reasons why this is wrong

Over the next few years all employers will need to automatically enrol their employees into a workplace pension.

But if you run a business and already offer a workplace pension, you don’t need to worry about the new Automatic Enrolment rules, right?

Wrong!

We are concerned too many employers mistakenly believe that because they already have a workplace pension, they don’t need to worry about Automatic Enrolment. But, the legislation is so wide ranging, it is unlikely your existing scheme and procedures will meet the rules without some changes.

Here are six reasons why you need to take action and review your existing pension:

1. Do you allow all of your employees to join?

Some employers select which of their staff can join the workplace pension, perhaps restricting access to higher earners or those employees who have been with the company for a certain period of time.

This approach won’t be allowed in the future.

Automatic Enrolment rules mean that you have to assess your workforce each pay period, generally weekly or monthly, categorise your workers and conclude whether or not they need to be automatically enrolled.

In short, after you reach your Staging Date you can no longer choose who joins your workplace pension; the legislation dictates who has to be enrolled and who doesn’t.

2. New employees and probation periods

Most new employees have to work through their probationary period, often three or six months, before the position is confirmed as permanent and they can join the pension.

Again, the Automatic Enrolment rules mean this has to change.

You can of course still include a probationary period in your employment contract, but you must automatically enrol the employee as soon as they start to work for you and make contributions on their behalf, until they either opt out or leave your employment.

For many employers this means they will have to change their employment contracts for new employees.

3. Will your existing pension accept new members?

It’s unlikely all of your employees are a member of your workplace pension, some will have signed up, but others won’t. The Automatic Enrolment rules mean that all of your workers who earn more than the weekly or monthly equivalent of £9,440 per year, will need to be enrolled into a pension.

But, there’s no guarantee that your existing pension provider will accept them.

We’ve seen examples where the existing pension provider has rejected new members, especially if the average salaries and therefore the contributions are low.

Employers shouldn’t take it for granted that the existing pension provider will allow new members, which is likely to mean two schemes will be needed, adding to the cost and complexity of compliance.

Employers should get their advisers to check whether or not the existing scheme will accept new members and then take any appropriate steps to ensure they can comply with the new rules.

4. Opting in and opting out

Many existing workplace pensions were set up well before Automatic Enrolment was conceived and may not therefore have the flexibility to cope with the new rules.

For example, employees have to be automatically enrolled before the Staging Date, allowed to opt out if they choose and then re-enrolled three years later.

Employers should check whether the existing scheme can cope with this potentially complicated process and effectively process refunds of contributions.

5. How much are members paying in charges?

As a general rule of thumb, lower charges mean higher pensions in retirement for your employees.

It therefore makes perfect sense to take this opportunity to review your existing workplace pension and compare the charges your employees are paying with other schemes, which are perhaps lower charged.

Furthermore, although plans have been shelved for at least a year, the Government seems keen to introduce a cap on the charges paid by members each year. Making it even more important to ensure your members are in a cost-effective scheme.

6. Are your systems up to scratch?

The month to month administration of existing workplace pensions can be hit and miss at the best of times, you therefore need to be confident that it can cope with the complexities of Automatic Enrolment:

• Will your current technology assess which of your staff are Eligible Job Holders, non-Eligible Jobholders or Entitled Workers? If not how will you do this?
• How will you produce the letters and various communications you need to send to your employees to stay compliant?
• Will your existing technology deal with workers who opt out? How will you keep track of employees who need to be opted back in?

All of these questions, and more, need to be answered if you are to comply successfully with the new regulations.

Check and change, or get a shock

Employers who already have a workplace pension face two stark choices.  Ideally the existing pension scheme and joining procedures should be checked, and if necessary altered, to ensure they meet the Automatic Enrolment criteria.

Employers who don’t do this and assume because they have a pension in place they don’t need to do anything, are in for a nasty shock, a lot of work and potentially a large fine for non-compliance.

As part of our service to employers, we will check whether or not your existing scheme and procedures are Automatic Enrolment compliant, helping you to avoid a nasty shock.

If you have an existing workplace pension our team of Automatic Enrolment specialists are here to help, get in touch today on 0115 933 8433 or email info@investmentsense.co.uk