Making plans for auto enrolment

Auto enrolment has been called the biggest change to UK pension legislation in a century. Larger firms have already gone through the process of setting up pension schemes that are compliant with the new regulations and, over the coming months, it will be the turn of smaller businesses.

The reforms are designed to encourage workers to save more for their retirement, but setting up a scheme can present challenges for small firms and partnerships such as LLPs, and there are severe penalties for non-compliance.

Many legal practices still do not have plans in place. Wesleyan research has found that, while 64 per cent of lawyers were aware that law firms should be arranging auto-enrolment pension schemes for their employees, only 54 per cent thought anything had been done to prepare for it.¹

Doing the right thing

Over the past few months, Wesleyan has been talking to law firms around the country to help them to prepare for auto enrolment. It found a key concern was that, while the firms are committed to doing the right thing by their staff, they fear being bogged down by questions about fund choices, percentage splits and other financial arrangements that they will not be able to answer.

Wesleyan is able to provide information to firms through the process of setting up an auto-enrolment scheme. Once it is in place, its financial consultants can then return to the firm to speak to the members of staff individually to advise them about the scheme and help them to make a decision that is right for them.

Frequently asked questions

Our financial consultants talk to lawyers every day, and pensions and retirement planning are a key concern. Here are some of the most frequently-asked questions lawyers are asking about auto enrolment.

Alec Collie, area manager for lawyers at Wesleyan

Q: When does my firm need to have a scheme in place?

A: The date when your business must be compliant is known as its staging date.

Firms with less than 50 employees will have a staging date between June 2015 and April 2017, depending on their number of staff and their PAYE reference number.

For a definitive staging date for your firm, visit the Pensions Regulator’s website at www.thepensionsregulator.gov.uk or contact Wesleyan at www.wesleyan.co.uk.

Q: Does auto-enrolment affect all employees?

A: There has been some legal argument as to whether an LLP’s staff would be eligible to be automatically enrolled but, following the Supreme Court decision in Clyde & Co v Bates van Winklehof in May, it seems clear that the vast majority of those aged 22 to 74 who earn more than £9,440 a year are eligible.

Q: Can firms opt out?

A: No. Employees can opt out if they wish, but it is illegal for their employer to encourage it.

Q: My firm already has a pension scheme. Does it have to do anything?

A: Yes. Every company must auto enrol. There is a misconception within the legal profession that, if you have a pension scheme in place, then you don’t need to act, but not all company pension schemes will be compliant with the new rules.

Speak to a specialist adviser to find out whether an existing company scheme is compliant and what else needs to be done within the company to ensure it complies with the legislation.

Q: How much do staff have to contribute?

A: From October, 2018, up to eight per cent of qualifying earnings will need to be paid into the employer’s pension scheme, three per cent of which will come from the employer and around one per cent from the taxman. The rest comes from the employee.

Q: How much do employers have to contribute?

A: Minimum employer contributions are being phased in over a number of years. Up until October 2017, employers will need to contribute one per cent of qualifying earnings, which rises to three per cent after October 2018.

Q: What is the process?

A: On average, law firms will have to complete 33 administrative tasks to prepare for final registration. The Pensions Regulator has said that firms should start planning for auto enrolment 12 months before their compliance date, but the earlier they start planning, the better. Nominating and registering a point of contact at your firm is the first step, followed by an assessment of any existing pension scheme and of staff eligibility.

Q: Who is responsible?

A: Ultimately, responsibility for getting a scheme in place by the staging date lies with the firm’s owners, which in the legal sector will commonly mean the partners.

Q: What are the penalties for failure?

A: Failure to introduce a compliant scheme in time is a criminal offence and firms with between four and 50 employees can be hit with an initial £400 fixed penalty notice and/or fined up to £500 for each day that the firm goes past the deadline.

Q: How can Wesleyan help?

A: Wesleyan has created an information service designed to help law firms navigate their way through their legal obligations. We can help firms understand the requirements laid down by the Pensions Regulator and create a bespoke timeline that alerts them to all of the key milestones leading up to their staging date and final registration. We also give employees face-to-face access to one of our qualified advisers, ensuring they can establish exactly what auto enrolment means for them.

Conclusion

Firms with 50 or more staff should be making plans for their auto-enrolment scheme now. Even smaller firms that have a later staging date should already be thinking about what they are going to do.

While staging dates still seem some time off, law firms are advised to begin researching their auto-enrolment obligations as soon as possible, as there could be complications along the way.

Ensure you have budgeted for the higher cost of employer contributions, and look out for hidden costs like record keeping and upgrading payroll systems.

It is vital to effectively communicate with staff and deal with their concerns through what could otherwise be an unsettling process.

The hefty penalties involved mean there is no scope for shortcuts, so by talking to an experienced specialist financial adviser you can make sure that the right policies are in place to protect your practice.

For more information call 0800 980 63 40 or visit the website at www.wesleyan.co.uk. The above does not constitute financial advice and is for general information only.

Endnote

1. Research based on a survey of 412 professionals (100 dentists, 101 doctors, 103 lawyers and 108 teachers) by Censuswide on behalf of Wesleyan, February 2014