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Considerations
Identify your staging dateEmployers should identify their “staging date” – i.e. the date on which they first become subject to auto-enrolment requirements. The staging date dictates when action is required; however, it might be worth considering bringing the staging date forward in some cases.
Consider which pension scheme to use for auto-enrolment purposesEmployers should consider which pension scheme(s) they intend to use for auto-enrolment and check whether it meets the minimum quality requirements for this purpose. If not, amendments will need to be considered well in advance to ensure the pension scheme is ready by the staging date.
If you are currently making changes to your pension arrangements, for example closing a defined benefit scheme and replacing this with a hybrid or defined contribution arrangement, then you should consider auto-enrolment requirements when designing the new arrangement.
Setting up a new pension arrangementTen million individuals are expected to be eligible for auto- enrolment, so pension providers and administrators will be processing an unprecedented number of new members. To ensure that the introduction of the auto-enrolment process works smoothly, the chosen provider should be approached in plenty of time to ensure the arrangements are ready by the staging date.
Mitigating cost increasesSome employers will already have pension schemes that meet minimum quality requirements, but due to the level of required employee contributions they have a relatively low take-up rate. Following auto-enrolment, employees will need to make an active decision to opt-out, and many pension schemes are likely to see significant increases in take-up rates as a result.
Other employers will have pension schemes that already meet the minimum quality requirements, but only for certain categories of employee. Following auto-enrolment, all categories of employee must be provided with pension benefits that meet the minimum quality tests.
Under both of these scenarios, pension costs could significantly increase. Employers should understand any potential increase in costs and consider taking mitigating action, for example redesigning aspects of the pension scheme or renumeration strategy to achieve a lower overall cost per pension scheme member.
Employers can use several pension arrangements for auto- enrolment purposes if they wish. For example, an employer may wish to have different benefit tiers in their main defined benefit or defined contribution arrangement for different levels of permanent staff, and then use a defined contribution plan or NEST to facilitate minimum contributions for staff on short-term or flexible working contracts.
Impact on Group Life Arrangements
It is easy to overlook group life arrangements when considering auto-enrolment. The rules of many group life assurance schemes provide for benefits to be paid in respect of any employee who is offered membership of (any) employer sponsored pension arrangement, including those who have declined an offer to join the pension plan.
With the advent of auto-enrolment many new employees will become eligible for pension membership and hence group life assurance benefit; possibly even those who opt-out. Employers that do not intend providing life assurance to all employees should review the eligibility criteria of the group life assurance arrangement.
Auto-enrolment and corporate transactions
If you are considering purchasing another company, auto- enrolment should be taken into account when assessing the potential pension costs associated with that company. Auto-enrolment will significantly increase pension costs for some companies, which in turn could have an impact on profitability.
Payroll and HR processes
Employers should ensure that their payroll systems, employee communications and other HR processes are ready for auto- enrolment well in advance of their staging date.