Spotlight

The road to auto-enrolment

Oct 01, 2018
It seems likely that Ireland will soon adopt the Auto Enrolment Retirement Savings System, so here’s some practical advice to help your clients prepare for the road ahead.

BY GARY BRIGGS

Back in 2012, when the UK Government introduced automatic enrolment (AE), only 50% of private sector employees in the UK were enrolled in any sort of pension scheme. Today, that figure is very close to 100% and the few employers that have failed to comply with the legislation face heavy fines. Whether they wanted to or not, the vast majority of UK employees are now saving money for retirement and although their futures are not guaranteed to be rosy, they are certainly more financially secure. Both employers and employees make contributions, resulting in an additional £2.5 billion saved into workplace pensions each year.

In Ireland, which will introduce AE by 2022, there is a mountain to climb. According to research carried out by Standard Life in early 2017, only one-third of all private sector workers in Ireland have any sort of pension scheme while the topic of retirement planning never even occurs to three-quarters of all employees. This presents a massive challenge for employers, and their accountants, who will very shortly need to start preparing their workforce for across-the-board pension contributions. AE, which is currently subject to a public consultation process, is likely to apply to those between 23-60 years of age and earning over €20,000 per annum. Contributions will begin at 1% for employees, increasing to 6% in year six. Contributions will also be matched by employers up to a maximum of €75,000 and the proposed State contribution is €1 for every €3.

Just to be clear: AE is probably going to apply to ALL employers. So a household employing one nanny will need to be just as diligent as a multinational corporation with 500 employees. The only differences will be in the scale of the operation and the timing. If Ireland follows the UK’s example, large corporations will be first in line. This will give SMEs, who are less likely to have pension arrangements in place, time to get their houses in order – but nobody will be exempt.

Your role

Let’s also be honest: not everyone is going to like this. Many employers, especially smaller ones, will regard it as an additional administrative and financial burden. Some employees may resent additional monies being automatically deducted from their payslips. Sadly, some will see it as a necessary evil akin to tax, rather than as a welcome gift for the future. In contrast to the UK, it is proposed that employees in Ireland – not their employers – will choose their pension provider on an individual basis. This could lead to confusion for employers.

This is where you, the accountant, come in. Your existing relationship with your client puts you in the perfect position to prepare them for this sea change. By pointing clients in the right direction and helping them organise their payroll data, you can smooth what can otherwise be a painful process and add significant value to your client/accountant relationship. It will also make your clients less likely to fall prey to other payroll administrators that might claim to offer a one-stop solution for AE.

Key factors

I was fortunate enough to be involved in the UK’s AE project from the beginning when one of my clients, a restaurant chain with over 40 sites, asked me to embark on a pension planning and budgeting exercise. This was followed by an investigation into the optimum software and payroll services to make the proposed process work efficiently. I soon realised that significant adaptation to their existing systems would be required and that financial advice was only a tiny part of the overall process. There were also 14 volumes of guidance notes to digest. Since then, I have helped hundreds of employers – large and small – to introduce workplace pensions. While every business is different, there are three common factors when it comes to the effective roll-out of pension schemes.

The first is data. Put simply, if you put bad data in, you get a bad solution out. So before any employer can even start to implement a pension scheme, they must get their employee and payroll data into impeccable order. More often than not, this requires an element of cleansing and re-formatting the data to make sure it’s compliant with whatever pension software they are going to use. Payroll operators may also need some degree of training to become familiar with the new process.

The second factor is communication. Assuming the Irish Government goes ahead with AE, we can expect the relevant government department to immediately start a nationwide campaign to promote the initiative. Many clients will nevertheless remain perplexed about their obligations. The average employee will be even less aware, and this ignorance will be far from bliss. Much of the language associated with pensions and AE is highly technical and the process, with its staggered enrolment dates and incremental increases, has the potential to be confusing. Effective communication will be required at every stage of the process to make employers and employees accept, and eventually embrace, this initiative. At Vintage Corporate, we developed a comprehensive communications toolkit to help our clients keep staff informed and engaged. Aside from the statutory letters, we supported the enrolment process with staff notices, workshops and one-to-one meetings. This gave us the opportunity to introduce the wider topic of general financial planning, which can ultimately improve employees’ financial well-being and enhance their employer’s status as a great company to work for.

The third key factor that facilitates adoption of workplace pensions is project management. These pension reforms will be Ireland’s biggest for many years and will necessitate a complex, highly regulated process. Each employer will have to complete numerous steps, often placing great pressure on support staff. Your clients can of course manage the entire exercise themselves, but it is likely to consume many hours that could be better spent. In the long run, it may be more cost-effective for them to call on the services of a professional adviser who has already managed the process several times and knows the ropes.

A long road

If you are speaking to your clients about AE, you should also help them realise that their obligations will be ongoing. Most employers naturally focus on the initial launch and implementation, giving less thought to the longer term.

The UK experience has shown that this was simply the beginning. Like us, you could introduce a comprehensive ongoing service whereby a member of your support team maintains regular contact with enrolled companies and visits them at least once a year to ensure compliance. You could also present clients with an annual report and a certificate of good pension governance.

Gary Briggs is Managing Director at Vintage Corporate and a leading authority on workplace pensions and group insurance.