Experience of the Pension Auto-enrolment Process for a Small Business

In February of this year, I went through the process of setting a company pension scheme for our agency to comply with the requirements of automatic pension enrolment.

Needless to say, it wasn’t very straightforward process. There is no good guide out there that tells a small business owner like me how to go through this process efficiently.

I will therefore outline the steps that I have taken to get our business compliant and hopefully this will help other small business owners who too are struggling to put all of the pieces together.

Step 1) Register with The Pension Regulator

  • If I’m not mistaken, the Government does not even enrol you automatically to the entire process, you have to do it yourself.
  • As strange as this is, although automatic enrolment is a legal and new responsibility for employers, you will not receive a single letter or leaflet about this so be careful.
  • We almost missed our deadline ourselves: once we registered to find out our staging date, we were told it was only 3 months away.
  • That’s not a great timeline for a process that the Government recommends should be started 6 months ahead!
  • Looking at it positively, at least we didn’t miss the deadline without even knowing about it.
  • So do register yourself as soon as you can here: http://www.thepensionsregulator.gov.uk/
  • Apparently the fine for missing the deadline is set as £50 per day if your business has less than 4 staff and up to £500 per day if you have more than 5 people in your business. More on this here.

Step 2) Choose your company pension provider

  • This is where majority of your time might go into (if you care about where your employees money will be invested).
  • We eventually went with Aviva.
  • The reason was that out of all pension providers who comply with automatic enrolment, Aviva was the only one that provided fantastic support, good online guidance as well as great customer service advisors patiently responding to all of my emails. Their webinars are also very helpful in explaining all of your duties as an employer.
  • It was an easy decision to make and we would highly recommend them as they were very helpful in the process of me trying to understand what we must do to comply and how it all works.

Step 3) Work out who to put to your scheme

  • In our case, this was the easiest part of the entire process.
  • Both the Pension Regulator and Aviva have plenty information about this and it’s fairly straightforward.

Step 4) Work out how much money each employee must pay

  • This is what the Government and pension providers call ‘minimum contributions’.
  • Surprisingly, this has taken me a while to figure out as there was no clear guidance on this.
  • Eventually, our Accountant found this great calculator that does the work for you.

Step 5) Prepare import excel sheets and your payroll software for the new duties

  • Aviva needs you to submit information using Excel sheets with certain data to enrol your staff.
  • This wasn’t straightforward and it takes some time to understand all of the terms that they use and how to fill the form out properly.
  • Aviva gave us general advice on how to fill the documents but did not want to comment on the accuracy of data that were put in. Understandably, they do not want to be liable but the issue is that someone needs to confirm if they are right or not > the Pension Regulator won’t do that for you either so here you need to rely on your own best judgement, the help of an accountant and if you are still unsure, use a financial advisor. We worked it out with our accountants and are confident that are numbers our correct but it took a while and was a frustrating process as there is no official glossary of terms.
  • Your payroll software will also need to produce these spreadsheets every months in order for Aviva to know how much every staff member contributes. Most payroll software can export this information into a CSV file which then needs to be manually uploaded to Aviva’s online app.
  • We use Xero for our accountancy so in the ideal world, Xero would be integrated with Aviva and this all would be done automatically, but for now, spreadsheets and manual uploading is the only way.

Step 6) Send out a letter to employees

  • There is a strict guidance about the type of communication that you need to have with your employees. Of course, the Government is especially keen to emphasise that the most important thing is to ensure that as an employer  you don’t encourage employees to opt-out 🙂
  • The Pension Regulator as well as your pension provider gives out templates that you can use. I highly recommend using The Pension Regulator one – it’s always better to be on the safe side and use exactly what they provided.

Step 7) Submit Declaration of Compliance

  • Easy process, all done online on the Pension Regular website.

FINAL TIP:

There are companies who act as a middle-man in the process. The way it works is that you pay them an initial fee and a monthly fee and they take care of the entire process above on your behalf.

The upside is that

  • You will spend minimal time setting everything up, they will do most of the work for you.

The downside is that

  • You will not understand how the process works if you don’t do the research and work yourself (as a business owner, I prefer to know and understand everything that I’m legally liable for).
  • You will pay them for their time so there are additional fees which you don’t have if you go direct to a pension provider yourself.
  • Your money might be invested in the middle-man’s pension scheme rather than with some larger reputable pension provider. An example here I can give is that one such middle-man claimed that our money will be invested in a ‘Scottish Widows’ pension fund, yet when I read all of their materials, it became clear that our money will be invested in the middle-man’s pension scheme that will invest with ‘Scottish Widows’ – this effectively means that our money would sit in some obscure unknown private pension scheme that currently chooses to invest into the Scottish Widows pension schemes. If the ‘middle-mans’ fund collapses or if they decide to invest somewhere else, we won’t be able to do anything about it. So not a great deal in my eyes.

Hope this helps someone.

Good luck with your auto-enrolments.

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