Proactive SMEs could still face auto-enrolment compliance headwinds

Two-thirds of micro employers with existing pension offerings and yet to reach their staging date had failed to check whether their current plans are qualifying auto-enrolment schemes, according to a report from the Association of Consulting Actuaries earlier this year.

The experience of setting it up was relatively straightforward… I expect the process to be a little bit more arduous when I review suppliers with a view to putting in an enhanced provider

Julian Samways, JPES Partners

But JPES Partners has taken a proactive approach over the past two years in order to achieve auto-enrolment compliance.

Julian Samways, managing director at JPES, which has a client base focused on the asset management industry, said the company was committed to delivering quality workplace benefits in order to attract and retain top talent.

Samways introduced a pension scheme for his workforce back in 2013 using services provided through the company’s bank.

Initially JPES made a lump contribution into the scheme, the value of which was determined by the company’s profitability.

Samways said: “I went with the services provided by my bank; one of the issues of caution with pensions is they’re quite complex. If you’re a small company you want the process to be as easy as possible.

“The bank... could directly debit contributions from my account… [I would be] dealing with one organisation.”

In January 2015 Samways reviewed the scheme and established a fixed employer contribution for each of the 12 employees in the company according to individual circumstance.

Of the company’s 12 employees, 11 make a monthly employee contribution while one has chosen not to pay in at this stage.

“Sometimes it’s difficult to get younger people to understand the importance of saving for the long term but it wasn’t difficult in the case of JPES Partners,” he said, adding that pensions is a “live issue for debate all the time.”

Samways anticipated the process to ensure full compliance would be more demanding than the initial work he undertook setting up the scheme.

“The experience of setting it up was relatively straightforward… I expect the process to be a little bit more arduous when I review suppliers with a view to putting in an enhanced provider of pension services.

“We will review the arrangements [again] at the end of this year [or] beginning of next year, to be absolutely clear where we want to be with auto-enrolment when it applies to us,” he said, adding: “That means we’re well-positioned to be in line with any auto-enrolment requirements.”

Provider selection

Neil Latham, principal in the defined contribution consulting team at consultancy Punter Southall, said employers that have already set up a scheme must ensure their existing provider is willing to administer an auto-enrolment-compliant scheme.

“That’s where some schemes have fallen foul with existing schemes,” he said.

Latham said pensions were not a core business for many banks offering a pension service to employers. Those that do would typically have a much smaller group of clients than larger providers and therefore lack the accompanying economies of scale and flexibility.

“Banks might say we’re not prepared to be your provider unless everyone is getting a 3 per cent [employer] contribution,” he said.

Compliance demands

For less proactive employers compliance could present real difficulties as small-employer staging dates draw nearer and the total number of those staging ramps up.

By 2016 an average of 45,000 employers will be staging every month according to research on SMEs and auto-enrolment by government-backed provider Nest this year.

Kim Gubler, director of Kim Gubler Consulting, and director and board member of the Pensions Administration Standards Association, said it is not just about being compliant but staying compliant.

Gubler said: “Many [employers] don’t know what a compliant scheme looks like so they need to understand that in the first place.

“If they have a pension scheme in place the starting point has to be the [Pensions] Regulator – they need straightforward information about what is compliant.”