The Pensions Regulator (TPR) is preparing to process its largest volume of companies in the next stage of auto-enrolment.
Small and micro businesses should prepare for their staging dates now says Phil Annand, Corporate Benefits Adviser at independent financial advisory firm Central Investment, who warns of the importance of planning and investing in the right auto-enrolment pension scheme from the start.
Introduced in October 2012, auto-enrolment has already had a significant effect on large and mid-size PAYE UK-based companies, with this and next year demanding that small and micro businesses now also comply with the auto-enrolment regulations.
TPR expects to handle over 110,000 small business employers in Q4 2015/16, a significant increase from the 3,400 medium sized employers processed at the same time last financial year. With so many businesses and employers gearing up to comply by their staging date, there is an increased pressure for smaller companies to be organised, plan ahead, and ensure they are choosing an appropriate pensions provider for their employees.
Small and micro businesses
The additional paperwork and administration that comes with auto-enrolment can often be a significant burden to smaller businesses due to a lack of internal resources. Should employers lack the resource and capacity to facilitate the shift, smaller businesses should turn to external advisors specialising in this area, ensuring they receive sound guidance as they begin the process of enrolling all eligible jobholders into a workplace pension.
Beyond Q4 2015/2016 TPR forecasts that 617,000 small and micro employers will remain to be processed by 31st March 2017. Demand for external resource will be at a premium and employers should plan ahead to ensure they gain the advice they need from their advisers, investigate the different options on offer and identify the pension that provides the safest investment for all employees.
Making the right choice
The lure of the cheapest option might appeal to employers with smaller profit margins, however there are many dangers and repercussions with choosing a workplace pension based just on how much it would cost you as an employer. Independent research has found a difference of 6 per cent a year return from the lowest performing pension fund to the highest.
While it may not seem like much, when inserted into a hypothetical situation of an employee saving 8 per cent of their £30,000 salary in a defined contribution pension, this could leave them with just a £185,000 retirement fund instead of the £715,000 if they had been enrolled in the highest performing fund.
Furthermore, the widely publicised pension freedoms now mean that many default investment funds do not reflect the likely intentions of scheme members when accessing their benefits. If an employer cannot demonstrate a robust selection process and that this initial selection has then been periodically reviewed, there is an increased likelihood of scheme members questioning why the default strategy is so misaligned to their retirement objectives and why their accrued funds do not meet their expectations.