What small businesses should know about the next phase of auto-enrolment
If you thought your auto-enrolment work was over when you submitted your declaration of compliance, think again! Here’s what happens next…
For many small businesses, auto-enrolment may still be a distant staging date in early 2018. But for the majority, the initial rush is over and the job is done.
The scramble to avoid fines and be compliant with new legal responsibilities is thankfully over – or is it?
At the moment employers pay 1% of their employees’ salaries, but from April 2018 that will rise to 2% and in April 2019, it will rise again to 3%. Sounds do-able.
But experts agree that as the effect of these increasing costs embed, this will be the time when business founders will sit back, feet on table, and shop around. There’s nothing stopping them as long as there is uninterrupted pension coverage.
Auto-enrolment pension providers set for direct comparison
The Financial Conduct Authority (FCA) is encouraging workplace pension providers to organise their less-than-transparent charging structures into a compatible order. And this is likely to lead to direct comparison tables – a kind of Go Compare for auto-enrolment platforms minus the charismatic, rictus-moustachioed opera singer.
At the moment, it’s quite hard to work out what will be a good deal for employers and their employees because charging structures are all over the place and you can’t compare like with like.
So, the initial decision to use the current provider may have actually been made in wide-eyed panic and chaotic calculator bashing, rather than confident knowledge.
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It could be that founders that pay a monthly admin fee, just for the privilege of offering a pension, decide to cuts costs in view of rising contributions and go for a provider that is free at the point of delivery.
Or the scenario may develop to highlight the fact their staff are not getting a good deal because up-front costs are diminishing their pots. This may lead to them looking to change to a provider that has no costs other than a regular, unchangeable annual management charge (AMC).
We are also likely to see apps being offered which allow employees to see their pension in real time, and this might lead to some pressure from staff to move over to a more favourable provider.
The other thing on the horizon is employee benefit packages. At the moment, auto-enrolment providers have been working on getting the job done, rolling out auto-enrolment with pared-back packages for simplicity. It’s been a lot to take in.
Employee benefits growth will lead to pension provider switching
But soon we will see providers offering employee benefit bundles that will give staff access to other types of insurance, for example, gym membership, and other money-saving offers.
These are likely to influence founders and decision-makers who want to give value-added to their workforce as motivation, possibly in lieu of a pay rise.
Meanwhile, in the background, The Pensions Regulator (TPR) has placed new governance responsibilities on master trusts (the investment mechanism behind most modern workplace pensions). So there may be some smaller trusts that will move under bigger, better organised umbrellas. This means that the provider a business has chosen, will change anyway.
The other thing to know is that every three years, whether you like it or not, you must re-enrol your staff. You must also ask everyone that has opted out to join again. This is often considered the pinch point when employers will look around to change provider. Those that had staging dates in 2014 will already be there.
Of course managing to encourage 10 million people to save for their retirement is a great piece of progress and it needed to happen. But from here on in, workplace pensions are going to get smarter.
Will Wynne is co-founder and managing director of Smart Pension, which has produced a free e-book aimed at helping SMEs and start-ups find their way around workplace pensions.