Atkin trustees, actuaries, consultants & administrators

Auto-Enrolment and DC Scheme Design

By 2017, just about every employee in the UK will be contributing 4% of their qualifying earnings to their pension, unless they choose to opt-out. In addition companies will be required to pay a minimum of 3% and the Government 1%.

From April 2015, the Government has confirmed that charges for defined contribution schemes used for auto-enrolment will be capped at 0.75% per year (not including transaction costs). The Government will consider reducing the charge cap in future years in a drive to ensure that members are receiving good value.

These changes will impact on all UK employers regardless of their size and it is therefore vital that they understand the implications. If you are not aware of your company’s auto-enrolment staging date it can be found by entering your PAYE reference on The Pension Regulator’s web-based tool, which can be found here: TPR AE Staging Date Tool

Impact on employees

It is vital that changes are communicated effectively so members (current and new) understand fully the implications. At all costs employers want to avoid employees being surprised that there is suddenly an additional amount being deducted from their pay packets.

New to pensions

For companies that are new to pensions, it is a sensible time to consider what sort of scheme will be appropriate and how they might be able to set themselves apart from their competitors, as well as putting in place the procedures necessary and communicating the changes to the workforce. It is important that sufficient time is given to choosing a scheme and provider and to consider what changes may be necessary to ensure that eligible members are included, to ensure that your payroll system can provide the output necessary to integrate with the requirements of the scheme provider and to provide members with all the information required in line with the regulations.

Established schemes

The potential influx of new members may swamp current administration processes and systems and it may be an appropriate time for a health check to test how these systems are likely to translate in the new world of auto-enrolment.

We can assist our clients in coming to terms with the new legislation and putting together an action plan to ensure employers are ready to meet the requirements when their time comes. We can review arrangements currently in place for compliance and assist with setting up new arrangements that fit the employer’s agenda as well as that of the Government.

If your company operates a Defined Benefit scheme that is still open to accrual then it will be necessary for you to confirm that it meets the requirements of auto-enrolment. We can advise on the steps you need to take and the information that you need to provide to members of the DB scheme.

Communicating value and what are the risks?

It is a commonly held view that, with DC schemes, the risks all lie with the members as the company will only ever pay fixed contributions.

However, based on the current level of pension provision, it is likely that members will reach their planned retirement age and find that they will be unable to secure an adequate pension. They may therefore need to continue working. The Company can end up with a disaffected and unhappy workforce who may have no option but to continue working.

This risk can be managed by;

  • analysing member statistics and trends to make sure that the scheme meets the company’s long term objectives
  • having an appropriate investment strategy which is reviewed regularly
  • ensuring that retirement options reflect the wants and needs of members
  • member communications are effective at putting across the issues to the members and encouraging engagement

We specialise in providing practical, no-nonsense solutions for small and medium sized firms and can work with you to design a scheme that both fits your needs in terms of long term objectives and short term costs.

Being ready to comply with auto-enrolment could take you more than a year, with the impact going beyond just extra pension costs. Our advice is don't delay.

I have just received our cheque.…and write to express our most sincere thanks to Chris Atkin and his staff for this amazing result! Please would you pass on our appreciation for his help and advice, and also the speedy result. I am now off to bank the cheque before anything happens! Brilliant!!!

Sue, Administration and Actuarial client