As the auto-enrolment timetable marches on, the Pensions Regulator’s “Educate, Enable, Enforce” strategy is starting to impact upon smaller employers. We take a look at current issues and trends in auto-enrolment compliance for small and medium-sized enterprises (SMEs).

  • Educate

A recent study[1] showed that almost 60% of SMEs were under-prepared for auto-enrolment. With staging dates for smaller employers looming – firms with upwards of 160 employees have less than nine months to prepare – it’s vital that steps are taken now to ensure compliance. If you’re not sure when your organisation will need to comply, the Pensions Regulator (TPR) has developed a handy tool for finding out your staging date.

Employers with more complex employment arrangements, such as overseas workers, may need specialist advice to work out their auto-enrolment obligations.

  • Enable

Once a staging date has been identified, the next key step for SMEs is choosing the vehicle into which employees will be automatically enrolled.

The Government’s NEST scheme was specifically designed with smaller employers in mind. However, NEST currently limits annual contributions to £4,500 a year and places restrictions on transfers to and from other pension schemes. These limitations have been perceived by some as reducing NEST’s appeal for SMEs.

This week, the Minister for Pensions, Steve Webb, reaffirmed the Government’s commitment to enabling auto-enrolment compliance for smaller employers and announced that these constraints would be removed. Legislation will be introduced shortly to remove the contribution limit and lift the ban on bulk transfers from 2017 (the end of the main roll-out period). Restrictions on individual transfers will be lifted sooner. Of course, it remains to be seen whether this development will make NEST more attractive to smaller businesses in practice.

  • Enforce

While the Pensions Regulator and Government are making efforts to ensure employers are informed and empowered to comply with their auto-enrolment obligations, the fact remains that many smaller businesses are simply not sufficiently prepared for their staging date.

Where an employer has failed to implement auto-enrolment, TPR has authority to issue fines of up to £10,000. In practice, reminder letters and phone calls will be the first port of call, followed by fixed penalties of £400, but firms should nevertheless be aware that, according to TPR chief executive Bill Galvin, “intentional and persistent non-compliance” can and will be dealt with severely.

  • Expense?

There isn’t a fourth ‘E’ in the Pensions Regulator’s stated auto-enrolment strategy, but its recently published accounts for 2012-13 showed that preparing for auto-enrolment cost TPR an additional £19.7m last year. Perhaps this might offer some consolation to small business owners who, in the study referred to above, cited affordability as the number one challenge of auto-enrolment.