Whilst a recent Government report revealed auto enrolment to be a surprising success story thus far, it has only really witnessed the on-boarding of the more substantially sized businesses with, of course, the full support and expertise of HR teams and finance staff on hand to smoothly manage the process. The real test, according to The Public Accounts Committee, will be when it comes to the turn of some 1.75 million small firms and entrepreneurs to embark on the government initiative in attempt to get more people saving for their eventual retirement.
There is a growing concern that these smaller businesses, many of whom have set up their companies operating from home and/or are entrepreneurs, lack the resources as well as the knowledge and experience in managing pensions. Many won’t even have pensions in place for themselves so setting one up for their employee(s) can be considered a far stretch. Not only are they facing the challenge of understanding auto enrolment and their new legal requirements as an employer, they are also discriminated against by the bigger players in the pension market who have purposely priced themselves out of their reach as they deem the businesses too small in terms of their size and their budget.
These small businesses and entrepreneurs have their work cut out for them when it also comes to looking for a provider to help them with their auto enrolment duties. When researching which provider to enrol with, the eight key questions that these small firms should ask are:
- Is the an upfront set-up fee? Upfront set-up fees can vary quite a bit, from being absolutely free to up to £1500. This extra cost does not translate as a better or more reliable scheme nor does it mean the provision of extra support. Pension providers like Smart Pension and NEST do not charge employers to set up a workplace pension.
- Are there any annual maintenance fees? Again, this is a fee that can vary up to £1500 and can be charged per company or even per employee each year. The latter can see costs quickly escalating out of control. If employers want to avoid this annual cost, opt for a scheme that is free to run on an ongoing basis.
- How long will it take to set up? Like with fees, the time that it takes to set up a workplace pension can vary from a mere matter of minutes up to a few weeks. This largely depends on process efficiencies and how data is validated. If time is a luxury that cannot be afforded, look for schemes that can be set up online and where data can be verified instantaneously.
- Is your payroll compatible? Schemes that are compatible with a company’s payroll or accountancy software will make the process less labourious. Make sure the scheme offers data links via the company’s payroll or accountancy software, PAPDIS (the free industry standard) or pensionsync.
- Are there any administration costs for the employee? Employees won’t be too pleased if they are being charged extortionately for the luxury of a workplace pension. Administration costs are charged as an annual fee to the employee and taken from their funds under administration i.e. their ‘pension pot’. The Government has implemented a cap on the AMC (Annual Management Charges) which is set at 0.75 per cent per annum. Some providers charge up to 20 per cent in fees (admin fees and transaction fees to name but a few) per employee each year which can end up being a substantial amount of the employee’s pension pot. This fee comparison table from Smart Pension provides a breakdown of some of the fees currently charged by the main pension providers in the market.
- Does the scheme provide day to day management? Managing the auto enrolment process can be rather onerous particularly for those who already run everything by themselves. Look for schemes that can automatically assist with some of the legal requirements such as employee assessments and generating educational letters and documents to distribute to employees. Employers who fail to comply risk being fined up to £400.
- Does the scheme accept everyone? Not all schemes guarantees to accept everyone. Look for schemes that offer universal acceptance.
- Is it a quality scheme? Some of the key things to help identify whether a scheme is of good quality include their Defaqto rating. Defaqto is an independent research company that provides information and ratings on financial products, including pensions, to facilitate and support better decision making. Their scale comprises of five stars, whereby one is the lowest and five, the highest. Smart Pension has been awarded a five star rating by Defaqto. Another thing is to make sure they have high quality underlying funds. Smart Pension uses Legal & General underlying funds. Also look for schemes that have master trust assurance (MAF) accreditation, a framework developed by the ICAEW in conjunction with the Pensions Regulator, which provides an independent review against an industry-wide quality standard thus demonstrating commitment to providing the highest standards for members. Smart Pension have received full accreditation of their master trust - the AutoEnrolment.co.uk Master Trust.