Many SMEs are leaving it too late to prepare adequately for auto-enrolment. As a consequence, they run the risk of making costly mistakes and being fined, Malcolm Streatfield has warned.
The chief executive of Lighthouse Group said the majority of firms were ignoring the Pensions Regulator’s advice to start preparing for auto-enrolment at least 18 months before the staging date and had underestimated the complexities involved.
Of the 32,000 SMEs set to enrol in workplace pensions this year, and the 1.6m over the next four years, Mr Streatfield said many wrongly thought it was easy to postpone staging dates, and that existing accountants and payroll providers were equipped to deliver the necessary advice and support.
He said: “Many have simply not factored in the length of time it takes to gather employees’ correct personal data and get their payroll systems into shape, which is a mandatory requirement of beginning the process.
“Starting early will mitigate the risks of making mistakes and getting fined as a result, while helping with the budgeting process and avoiding any market capacity problems. Too many businesses have left the process too late and risk making costly mistakes by using the wrong solution.”
On the common misconception that businesses can postpone staging times and not think of enrolling until a later date, Mr Streatfield said that despite its apparent simplicity, deferment carried lots of “risks”.
In the case of postponing, he said SMEs would need to decide which supplier to use and structure to adhere to, while undertaking the mandatory requirement of notifying employees of all the necessary information.
Mr Streatfield also said that even larger firms with the necessary resources struggled to adapt to auto-enrolment.
One issue that many have found, he said, was that payroll systems were unable to deal with the demand within the allotted time, which meant some employers had switched suppliers during or after the process.
Richard Mattison, director at Ssas administrator Whitehall Group, agreed that the complexities of auto-enrolment represented a tough challenge for smaller employers.
Even though Mr Mattison has worked in pensions for more than two decades, he claimed that auto-enrolment was plagued by various issues linked to payroll and the requirement to make regular updates, which made the process time-consuming and expensive.
He added: “It is ridiculously complicated. I dread our staging date, even though I have worked in pensions for years.”
Adviser view
Tom Binstead, director of employee benefits at Cheltenham-based Bank House Corporate, said: “I completely agree. SMEs do not realise the complexities of auto-enrolment and are not giving themselves enough time to manage the process. The assumption is that existing pension schemes and payroll will cover everything, but in reality they probably will not without a cost. I find that leaving it to the last minute raises more questions by employees and the lead time is spent keeping employees informed about what is happening.”