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Employee Benefits News

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22 Jan 2013

Don't Be on Auto-Pilot For Auto-Anrolment

Iain Fox, director of Bath employee benefits specialist Fidelius, explains why it pays for small and medium-sized enterprises to be ahead of the curve when it comes to pensions auto-enrolment.

No doubt you’ve seen the Government’s auto-enrolment adverts with the likes of Karren Brady and Theo Paphitis declaring “I’m in”. But auto-enrolment isn’t a bit of celebrity-backed tinkering of the pensions system, it’s a root-and-branch overhaul of the way that employees save for their retirement – and the implications for every company in the UK should not be under-estimated.

In a nutshell, the introduction of auto-enrolment means that the default position for employees is that they are paying into a pension at work unless they actively opt out, with their employer obliged to make contributions. Previously, people only paid into a pension if they took pro-active steps to do so.

Mindful of an ageing population and the ‘savings gap’ confronting millions of people, the Government sees auto-enrolment as a means of stimulating retirement savings and preventing a chunk of the population living out their retirement with a poor standard of living.

Auto-enrolment, which came into effect for the UK’s largest companies on October 1, places legal obligations on employers. If they do not offer an approved pension to employees then they face a host of financial penalties.

As such, auto-enrolment is not something to be taken lightly; companies which fail to grasp what it means for them risk being hit where it hurts. 

While auto-enrolment currently affects only the big beasts of the UK economy, such as the major supermarkets, every firm in the country will be required to auto-enrol staff in a pension by 2018. Between now and then, every company – depending on its size – has a ‘staging date’ for when it will be required to comply with the new pensions regime.

It always pays to plan ahead for every aspect of your business, and this is particularly the case with auto-enrolment. Its introduction has both HR and administrative implications for a business, and requires careful budgetary consideration.

Under auto-enrolment, employers are required to make contributions at or above a specific level to their employees’ pensions. If your business’s pension arrangements don’t currently meet the Government’s new required standards, then you will have to think carefully about how to incorporate auto-enrolment into your financial plan. Pay reviews between now and your company’s staging date may need to take into account the potentially increased cost of pension contributions that lies around the corner.

But it would be wrong to view auto-enrolment as just creating an administrative burden for companies; it also creates opportunities for those willing to grasp the nettle. Because this is such a far-reaching shake-up of the UK’s pensions, it is a good time for companies to review their entire benefits packages for employees. Auto-enrolment will make pension provision the norm whereas it’s presently viewed as a stand-out benefit, so making your benefits attractive in other ways will help you remain the employer of choice. With some imaginative thinking, auto-enrolment can be incorporated into new, attractive packages that serve to retain and even attract top employees.

The Department of Work and Pensions has calculated that there are around 11 million people who are currently saving inadequately for their retirement. Auto-enrolment may be regarded by some as strong medicine, but it could prove a tonic to this alarming savings gap. Companies now have to respond, and those which adapt quickly and prepare rigorously will put their business on a solid footing. 

To receive the latest from the panel register here at www.bath-business.net get the latest news about businesses in Bath. 

John Calvert-Jones

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