Most businesses will be aware now that workplace employee pension schemes are coming into force over the next few months, but many are still having trouble getting to grips with Auto enrolment costs.
For small businesses in particular, Auto enrollment is an expensive exercise, and there are lots of potentially forgotten expensive that can drive up the cost beyond your budget. Here’s everything you need to know about Auto enrollment, the charges involved with setting up a workplace pension scheme, to help you manage your resources effectively:
Initial Auto enrollment costs
Before the schemes even roll out to employees, there will be a number of costs faced by businesses. For example, many companies choose to consult a financial advisor for advice on what they need to do, and most SMEs will outsource the actual pension scheme management to a third part provider.
A Pensions Regulator study found that the average cost for seeking financial advice was £440, although some companies paid up to £1,000. Remember that the cheapest option isn’t always best; it’s the quality of advice you receive that counts.
Even within your organisation, the administrative tasks associated with establishing an auto enrolment scheme will take up valuable time, which your workforce could be spending on other tasks.
Another thing to consider is how becoming an Auto enrollment employer changes payroll requirements. If you outsource your payroll, adding auto enrolment to the task list could push up your monthly fees. If you manage it in house, the accounting software you currently use may not be able to integrate new requirements without an upgrade.
Finally, there may be an up-front charge to establish an auto enrollment scheme, depending on the size of your business, and whether you’re being offered a default scheme or something more closely tailored to your business needs.
There are programmes available to keep set-up costs down for small businesses – for example, the National Employment Savings Trust (NEST) is a government-backed pension provider that does not charge initial fees, and is duty bound to accept all employers that apply for automatic enrollment.
You (or your client) should ask the provider what they will charge your client based on how many staff they have and agree which charging method is best for your client. You (or your client) should also ask the provider what charges the scheme members will pay.
It is important that your client weighs up the costs and charges for both them and their staff against the level of services that the scheme will provide – some of the services may make running automatic enrollment easier over the long term.
Ongoing Auto enrolment costs
Unfortunately, financial demands don’t stop when your workplace pension scheme is up and running. Of course there is the employer contribution that you are required to make towards your staff’s pension pots, but there are other charges that can also bite into your bottom line if not managed correctly.
For instance, some of the items mentioned above may have regular administration charges, such as accounting software, financial advisers, payroll, and the pension schemes themselves.
It’s also worth mentioning that those business owners reading this article and thinking that Auto enrollment is too much hassle will face a hefty penalty if caught failing to comply. The government charges up to £500 per employee for missed auto enrollment deadlines – making the cost of inaction potentially much greater than any financial outgoings needed to set up the scheme.
If you’re worried about budgeting for the introduction of compulsory workplace pensions, the best thing to do is to speak to a professional advisor, who can provide auto enrolment advice on where you can keep costs to a minimum.
If you feel you could benefit from a little more financial advice then download our guide today, to get started with your workplace pension scheme before it’s too late.