The importance of a good payroll provider

With the changes in pensions legislation that have occurred over the last few years, the role of the payroll provider has changed in its importance to the company pension scheme. Before they enjoyed something of a backseat role, but now they have been thrust to the forefront of a company’s dealings with its pension provider.

Automatic enrolment has added extra layers of complexity into the process of assessing eligibility, managing the membership, data, and contribution payments for pension schemes.

As with any dealings with an individual or firm, you get out what you put in and with payroll providers it is no different. Employers who bring their payroll providers in to this process early, often find that the teething issues most pension schemes encounter can be greatly reduced.

However it is not just the employer’s responsibility to bring their payroll providers in on the pensions process, it is also the responsibility of the pension providers themselves.  For some it can be as simple as inclusion on regular conference calls, and for others far more specific inclusion and training is required.

Encouraging a greater awareness of the automatic enrolment process on the part of the payroll provider should be the overriding aim of both the employer and the pension provider respectively as auto enrolment becomes more established in workplace pensions.

Robert Simmons
Corporate Pensions Administrator

Telephone: +44 (0)20 7893 3456
Email: contactus [@] broadstone.co.uk

We're all in - well not yet, but we want to be!

Latest figures from The Pensions Regulator (tPR) indicate that more than 5 million additional employees have been enrolled into an employer’s pension scheme since automatic enrolment legislation came into effect.  Now that large and most medium-sized organisations automatically enrol staff into a Workplace Pension scheme, smaller employers are increasingly coming under pressure from existing and particularly new employees who expect to benefit from pension membership.  This has led to us seeing an increase in the number of requests from employers who say they want to bring their staging date forward.

Other reasons for bringing the staging date forward are to align the start of automatic enrolment with annual pay reviews; the company’s new financial year; the flexible benefit scheme ‘window’; or simply a less busy time of year that better suits the business.

 

Before embarking on this course, however, it is important that both the company and the pension provider will have sufficient time to prepare and can accommodate the reduced timescale. This is important because once the employer informs tPR that it will be bringing the staging date forward then it cannot be moved back. Earlier available staging dates are listed here.

 

What clients don’t always appreciate is that they could launch and start their pension early on a voluntary basis (i.e. a ‘soft launch’) and then automatically enrol remaining staff at their original staging date. 

 

The soft launch enables an employer to benefit from considerable employee goodwill (if communicated effectively) as a result of starting pension contributions early; defers the contribution cost for any employees who do not join voluntarily at outset, and allows extra time for automatic enrolment to be communicated to staff in advance of the staging date so that it comes as no surprise to existing employees.  

 

Ian Willans
Business Development Consultant
Telephone: +44 (0)20 7893 3456
Email: contactus [@] broadstoneltd.co.uk

Have employers gone AWOL on automatic enrolment?

April, May and July 2014 were supposed to see the first real test of automatic enrolment offerings in the market and legislation.  These are the months when the majority of the 35,000 employers that needed to comply with the new pension regulations this year were impacted. 

 

This figure dwarfs the 12,000 employers that have already had to put a Workplace Pension Scheme in place since the implementation of automatic enrolment.  However, commentary from many pension providers suggests that they haven't had the influx of schemes they expected (some less than half). Now this could be because employers are using postponement but according to the law a scheme still needs to be in place from the staging date. Worse, could some employers have gone AWOL and decided not to bother with these new requirements?

 

In some respects this is no surprise. Many businesses are finding it hard to dedicate the time and resources needed to automatic enrolment.  However, the first significant case where a company failed to comply with the rules has already been highlighted by the Regulator.

 

The Regulator is monitoring developments closely. As of the end of March 2014 they had issued 14 compliance notices, one unpaid contribution notice, two statutory inspection notices and one statutory demand.  The Regulator says a common cause of them having to use their statutory powers is insufficient time and resource being given to the planning and preparation for the new duties.

Employers should expect to properly plan for automatic enrolment and put aside a minimum period of between three to six months to deal with these changes. The actual lead in time for planning and implementing these changes will be very dependent on the company's knowledge in how to implement automatic enrolment, the complexity of the employee employment contracts, the assessment of the current employees and their eligibility along with a review of pay structures and payroll arrangements currently in place, in addition a review of any current pension arrangement should take place to ensure that it meets the Governments minimum requirements as a Qualifying Workplace Pension Scheme. 

 

The message therefore is clear. Although it may be a challenge to find time to deal these new rules, employers have no choice or they run the risk not only of fines from the Regulator but reputational damage if they do not fulfil their duties.  They also face the potentially higher costs of complying at short notice through not spending the time required to make the decisions on what is best for their business and their employees.

 

Nick Rudd
Corporate Benefits Director

Telephone:+44 (0)20 7893 3456

Email:  contactus [@] broadstoneltd.co.uk

 

Active Member Discounts

The Government recently released further information on its plans to cap Annual Management Charges at 0.75%, and also remove Active Member Discounts, from the list of charges that providers have sometimes levied on our personal pensions upon stopping regular contributions.

To elaborate, the base charge providers use to administer our pensions and investments is called an Annual Management Charge (AMC) which is taken from our pension investments. Typically this can range from anything as low as 0.10% to as high as 2.00% a year, but for most of the new employer schemes I’ve seen installed in the last few years, it has been between 0.35% and 0.75%.

The Active Member Discount mechanism was generally added to employer schemes where providers would agree to provide a ‘low’ AMC for those members who paid pension contributions regularly, in exchange for being able to increase the AMC to those who stopped. Usually the charge would double, for the last such pension I had from an employer it went from 0.35% whilst I was there making contributions, to 0.70% when I left and stopped.

So good news for you and me, the Government is getting rid of that possible trap and capping our costs going forward!

Now that I’ve finished today’s educational piece, I can’t resist playing devil’s advocate here.

Considering the Government’s desire to get us all saving more for our retirement, is there a case for saying they’ve lost a good incentive, by removing the scope for this Active Member Discount mechanism?

Let’s put it in the context of another ongoing concern of the Government, the state of the nation’s physical health.

Now what if the gym, which insists you sign up for an annual membership, instead of charging me a fixed monthly fee, charged me less if I went to the gym regularly, and more for the days when I didn’t.

The more I went, the less I’d pay, and hopefully (although not guaranteed, if I just sat in the Sauna), the fitter and healthier I’d be.

Of course, the less I went, the more I’d pay, and I may have to accept I will no longer look this trim.

Wouldn’t this be a good incentive to get off the sofa and go to the gym to get fit?

Back to reality and unfortunately Active Member Discounts for pensions didn’t have this effect. They weren’t conceived as an incentive, or particularly marketed in this way. Members were told about them when they started the plan, but generally had forgotten by the time they had left, or had stopped making contributions. And where they didn’t necessarily think about the plan again, possibly suffered unwittingly.

Undoubtedly losing this particular mechanism is a victory for the consumer, removing a potential pitfall for the less engaged investor.

As the auto enrolment legislation takes effect, fortunately many of us will continue to make regular contributions throughout our working lives now without rest. The need or place for any such mechanism, potential incentive or not, has seemingly gone, and is probably best left consigned to history.

Charles Goodman

Consultant

Telephone: +44 (0)20 7893 3972

Email:  contactus[@]broadstoneltd.co.uk

Auto Enrolment: Thinking about data & systems yet?

My dad is a systems integration engineer and right now I can really empathise with him! His job basically involves taking a number of components that were never intended to work together and trying to force them to work seamlessly as part of a process.

The parallels are there for auto enrolment pensions at the moment, with trying to integrate the HR systems with payroll system to get all the necessary employee information out to input into the auto enrolment system. Sounds simple when you start to talk about it, right? Then you realise that yes, these systems can export some of the data (usually not everything that you want), but never in the format required or quite in the right way to make the job straightforward.

I find that conversations about pensions data & systems early in the auto enrolment planning stage are an absolute must.  Have a call or a meeting with your payroll provider, auto enrolment consultant and pension provider as soon as possible to understand the challenges ahead.

 

Rob Barksfield

Auto-enrolment Consultant

Telephone: +44 (0)20 7893 3456

Email:  contactus [@] broadstoneltd.co.uk

Budget 2014: Trivial Pension Pots – an inappropriate use of words?

Whilst everyone is digesting the impact of the Budget announcements, there is little doubt the overall relaxation and potential reduction in the ‘tax take’, from our pension funds, has been well received.

Sadly, the use of the word ‘trivial’ with regard to smaller pension funds is at best inappropriate and at worst unavoidable due to our modern working practice and a more transient population. No matter how small a pension pot it is important to acknowledge that its owner has worked hard to build up these funds and certainly deserves better recognition for their efforts than – ‘trivial’.

That said, these same individuals have potentially been handed one of the most favourable retirement planning strategies in the Budget.

The ability to withdraw 100% of a fund, below £10,000, as a lump sum (up to three times in their lifetime) with 25% of the fund being tax free and the remainder being taxed at their marginal rate increases an individual’s overall retirement flexibility - especially as there will be no requirement to purchase an annuity.

Amassing several small pension funds, over a lifetime, is currently the norm and not the exception. But with auto enrolment gathering momentum the likelihood for everyone to have several small funds in the future highlights that retirement planning will become more important and possibly more complex in future.

For some withdrawing 100% of their pension funds, as cash, may be wholly appropriate; whilst for others the decision may not be as clear cut.

Whichever side of the fence you sit on in the current retirement planning debate and no matter the size of your pension fund there has never been greater need for independent financial advice than at present.

 

Helen Wilson

Consultant

Telephone:  +44 (0)20 7893 3456

Email:  getintouch[@]broadstoneltd.co.uk

 

 

Are auto enrolment contributions alone enough for retirement?

Following on from Rob’s last post on why we’re all being automatically enrolled, I thought it would be a good time to tackle whether these auto enrolment contributions alone are going to be enough for retirement?

In short, it’s unlikely.

Now the contributions are being phased in. Using the default earnings basis the contributions will start at 1% for the employee and a minimum 1% for the employer, from October 2017 this will rise to 3% for the employee and a minimum 2% for the employer, and finally from October 2018 it will be a 5% employee contribution with a minimum of 3% from the employer. So from October 2018 it will stabilise at a total of the equivalent of 8% of your salary being paid into your pension.

But what does that mean in terms of what you receive when you retire?

Well to put it into context, Scottish Widows 2013 UK Pensions Report says that “the average British worker anticipates stopping work around age 66 and is looking for retirement income of £25,000 a year. That would require savings of £1,000 a month from age 30.”

On an equivalent salary of £25,000 a year now, that would be a contribution of 48%. For many receiving only the minimum employer contribution of 3% at 2018, that means they will need to find a contribution of 45% from their own salary!

To be fair, many people are looking to live on around half their salary at retirement, but that still means on a salary of £50,000, you would need to contribute 21% of your salary from 30, receiving 3% from the employer.

Now you may not want to retire by 66, or need an annual pension of £25,000, you may need more, you may need less. The message is that you should take this as an opportunity to think where you’d like to be at retirement, and whether or not the auto enrolment contributions alone will ensure you have the kind of retirement you can look forward to.

Charles Goodman

Consultant

Telephone: +44 (0)20 7893 3972

Email:  contactus[@]broadstoneltd.co.uk

A school lesson

 

Ok, the schoolmaster’s hat is going back on again, bit of a lecture this one. We’ve touched on all sorts of technical details of auto-enrolment so far, but why are we doing this in the first place?

 

The first reason is that the State pension is up the swanny (note: technical term). We have an ageing population who, thanks to medical science, just refuse to die off gracefully. There are simply not enough young people to support the rapidly expanding over 65 population at the moment, so expect to see some changes to how the State Pension operates in the coming decade.

 

Presently, those receiving the Basic State Pension get roughly £5,700 per year, which is below the poverty line of £6566* - not ideal. So we can either raise taxes to increase the state pension or get people to pay in to a personal / company pension scheme. The Labour government of the time chose the latter option and enshrined it in the Pensions Act 2008. So now we have what was originally called pensions compulsion, now called auto-enrolment.

 

We’re actually behind many other countries around the world in implementing this. New Zealand has the Kiwisaver and Australia has a range of Superannuation schemes – even Chile is further along in its auto-enrolment provisions than we are!

 

 

Rob Barksfield

Auto-enrolment Consultant
  

Telephone: +44 (0)20 7893 3972

Email:  contactus [@] broadstoneltd.co.uk  

*Monitoring poverty and social exclusion 2013, Joseph Rowntree Foundation

 



 

 

We’re going through changes…

I had an interesting conversation yesterday with an employer, which shows how much you can tell people something and they don’t listen. I’ve been working with this particular employer for several months looking at their data issues and how they can assess their employees each payroll cycle.

At the beginning of every project I outline to every client how the assessment process will work and one of the questions I make a point of asking is “how much spare time do you have between payroll cut-off and the time you pay”. The answer from payroll is indubitably “never enough”.  

Auto-enrolment imposes new duties on the employer, which must take place between the payroll cut off and pay date. The chances are that you might have to make some serious changes to the way the company works to accommodate this. This might mean bringing the cut off date forward or being tougher on timesheets. 

Whatever happens, you are going to have to consider how auto-enrolment is going to fit into your business as usual in a workable fashion.

 

Rob Barksfield

Auto-enrolment Consultant 

Telephone: +44 (0)20 7893 3972

Email:  contactus [@] broadstoneltd.co.uk

A telling off

Right, today I'm putting on my schoolmaster's hat and sending you to detention, your punishment is to write out a hundred times "I will start to plan my auto-enrolment early enough".

We're now entering the busiest part of 2014 – for me & my team there won't be much free time between now and August. The workload is planned and we know what we have to do to look after our existing clients, but it's the new clients who present us with a problem.

So many employers have simply not left enough time to prepare – two weeks before the February 1^st staging date and I was sitting with employers who haven't even started their planning – you might need to implement a new pension scheme, review employee contracts, change your payroll process. Two weeks isn't enough to make any of those changes.

Please do yourself (and your auto-enrolment consultant) a favour – start your planning at least three months before your staging date.

 

Rob Barksfield

Auto-enrolment Consultant

Telephone: +44 (0)20 7893 3972

Email:  contactus [@] broadstoneltd.co.uk

What is a pension?

Actually this is a pretty good question, given that several million people will have one by 2017 and as I know from years of employee pension talks that not many people actually understand what they are.

The technical answer probably runs something like “a tax efficient savings vehicle with limitations around contributions and decumilation” – which means nothing to anyone outside the pensions industry!

Simply put its “one way of saving for retirement that’s got a few incentives to it”. Now I do like a good pension plan. It’s one of the ways that the Government encourage people to save.

If a person puts in 80p then they get the other 20p they’ve paid in income tax put into the pot as well (more if they’ve paid a higher rate of tax). It’s invested in the pot and hopefully grows tax efficiently in the pot until you take it out (although the value of the investment can go down as well as up).

Once the money’s in the pension, it can’t be accessed until you are 55 – which is great for stopping you spending it on holidays / cars / extensions – it’s not supposed to be for that type of expenditure.

There’s been a lot of bad press about pensions over the years and I’ll be the first to admit that they aren’t perfect. However, for a lot of people they are a very good way of saving for retirement. We are helping employers cope with new legislation where they have to auto-enrol employees into a pension. You’ll find more information on our website.

Rob Barksfield

Auto-enrolment Consultant

Telephone: +44 (0)20 7893 3972

Email:  contactus [@] broadstoneltd.co.uk

Auto-enrolment: No time like the present

There are many quirks that I’ve come across when looking at auto-enrolment pensions with clients, one of my favourites is how you treat a zero hour contract worker for auto-enrolment. Like it or not, if they have a contract of employment with you and you pay them through your payroll, then the chances are that you will still have to assess them for auto-enrolment – although I have to caveat that and say you should seek legal advice.

Now, this shouldn’t hopefully be too much of an issue for most employers – you’re already going to be assessing the rest of your employees, so you’ll just have to add the zero hour workers onto the list. Not so bad for the smaller employers, but having just dealt with an employer of 900, where 850 employees have zero hours contractors I have seen it cause some challenges!

If you are a cost conscious employer, it shouldn’t dramatically increase the pension bill either, since many of these workers earn less than the £787 per month to trigger auto-enrolment, plus you can use postponement to mitigate the cost further.

The main challenge around zero hour working is the payroll data. These workers by their nature tend to come & go quickly and getting timesheets in for their irregular hours is not always easy. So if you have zero hour workers, you might need to look at earlier cut off dates for getting information into payroll, so that you can fit in the auto-enrolment assessment with enough time to spare.

Rob Barksfield

Auto-enrolment Consultant

Telephone: +44 (0)20 7893 3456

Email:  contactus [@] broadstoneltd.co.uk

 

 

Pension Auto-Enrolment - Non-Executive Directors Beware!

Only this week we have had a number of discussions with clients, who hold non-executive directorships, who were unaware that by automatically becoming a member of a pension scheme they could seriously affect their own pension arrangements.

This is because of the roll-out of auto-enrolment pensions (a new law requiring every employer to automatically enrol workers into a workplace pension scheme).

We are therefore advising all of our clients who have substantial pension benefits, protected lifetime allowances (the maximum you are permitted to have in pension assets by value without a future tax charge) and have one or more Non-Executive Directorship (NED) roles to check this out with their respective payroll departments.  This is to ensure they are not automatically enrolled in a pension scheme.

There are exemptions in place that are likely to cover most NEDs, however our concern is whether our clients, and the companies they are working with, are aware of these exemptions.  If they are not, there is a chance they could inadvertently become members of a pension scheme.

For clients who have protected lifetime allowances (potentially uncapped), being auto-enrolled could result in the loss of this protection and a reduced lifetime allowance of £1.25m.  In monetary terms this could easily lead to a six figure future tax charge!

Please do give us a call if you are a NED and please click on the link below if you would like to learn more on this and other planning ideas to consider before 5 April 2014.

Click here for 10 Planning Ideas to do before 5 April 2014.

Antony Summers
Private Client Partner

Telephone: +44 (0)20 7893 3456
Email:  getintouch [at] broadstoneltd.co.uk

Got your employee email addresses? It's crazy not to.

Over the past few months of working on auto-enrolment projects, we’ve turned up one piece of information that most employers have space for on the payroll file, but few are ever filled in - employee email addresses. Unless you have electronic payslips, they’re mostly a nice to have on a payroll file aren’t they? Not for much longer…

The default communication strategy for the majority of UK pension providers is email. For them it’s simply a matter of cost, the fewer paper communications they have to send out, the less money they have to spend on auto-enrolment. So their default is to send as much as they possibly can be email to your employees. If you want to send paper statutory notifications to your employees, you have to print & post them yourself (another job you didn’t want!). Don’t forget that these communications are a legal requirement so if you don’t send them out, then you’re liable to get fined.

So having employee emails on file, whether work or personal, will make your life so much easier.
 

Rob Barksfield

Auto-enrolment Consultant

Telephone: +44 (0)20 7893 3456

Email:  contactus@broadstoneltd.co.uk

Plan the dive, dive the plan.

This is a little bit leftfield for an article about pensions & auto-enrolment, but I want to talk about scuba diving today.

I’ve had an odd career path, but I started out years ago as a maritime archaeologist and consequently spent a lot of time diving in the UK and the Baltic. Before you ever get near the water for a project, you plan as thoroughly as possible, because once you’re underwater you only have a limited period of time in which to get a lot done. Plus, if you get it wrong there’s a good chance of damaging yourself.

Obviously there are some parallels to auto-enrolment planning. Most employers don’t leave themselves enough time. We recommend six months planning in the lead up to implementing auto-enrolment. We’ve just completed a project for a 700 employee company that staged on 1 November. They were a straightforward client, but the auto-enrolment planning that we did in the first three weeks was crucial. It seemed time consuming and it’s not as exciting as the actions of getting everything done, but it is hugely important to understand how much auto-enrolment will impact on your day to day processes.

There will be a huge amount of work to be done to get ready for auto-enrolment, but take the time to plan what needs to be done and do it properly. Incidentally, the client has said that this was the “smoothest project we’ve ever put in” – it’s all in the planning.

Rob Barksfield

Auto-enrolment Consultant

Telephone: +44 (0)20 7893 3456

Email:  contactus@broadstoneltd.co.uk