Many SMEs are facing bumps along the route to auto enrolment. In his latest blog, Chris Howell suggests a way to smooth the ride.
Over very recent years and well into the future one of the main topics that employers are required to make decisions on is that of employee pension benefits. Since the advent of the requirement for ‘auto enrolment’ of all eligible staff and the cost to both employer and employee, the financial press has been full of ‘advice’ most of which is relevant to firms of various sizes.
“This money can then be utilised to provide a financial/pension advice service for employees”
But most that has been written and promoted, so far, has been looking directly at the requirement of the law for auto enrolment as purely a ‘pension benefit’ imposed by government on the employer and the employee. The employer is required to auto enrol all eligible staff. However, the employee does have the facility to ‘opt out’ of the pension scheme, whatever benefit that may provide.
Because of the age range of staff in many firms there may well be some employees who feel that it is not worthwhile if there is only a short time before they reach retirement age or they do not intend to remain with that employer for long. Many employers will find the ultimate total costs (8 per cent by the end of 2018), of which the employer is required to pay 3 per cent of employees’ eligible salary. Which is somewhat expensive.
There is no simple answer. Because an employer cannot ‘give advice’ on financial matters unless properly qualified, the employee will have to seek his/her own advice at his/her own cost. This could easily result in a wide range of advice and in the employer receiving a number of contacts from a whole list of advisers seeking information in connection with the pension for individual employees. Also possibly even attempting to send the employer an invoice for the advice to the employee!
However, there is a slightly different way of viewing the situation. As an employer there is the offer of a ‘remuneration’ package to employees. Part of that package should soon include the auto enrolment pension scheme. As a part of the total remuneration package, if the employer decides to reduce the remuneration package by £X, this money can then be utilised to provide a financial/pension advice service for employees, which is a part of overall terms of employment. There is, of course, still the option for any employee to take their own financial advice, but if it is something ‘organised’ via the employer a servicing adviser looking after the pension scheme, they will be able to remove the problem and any outside enquiry can be directed straight to the adviser.
Some employers may already offer an adequate pension scheme and possibly additional employee benefits. All these will come as a part of the remuneration package for the employee and are budgeted by the employer. If considered on this basis, there should be little problem in adjusting.
More about auto enrolment
- What is auto enrolment?
- Auto enrolment for employers
- Auto enrolment: please don’t ignore it!
- A guide to auto enrolment for SMEs
- A beginner’s guide to pensions