Employers face rising costs due to auto-enrolment

More than eight employers in 10 are facing an increase in costs as a result of pensions auto-enrolment, research from XpertHR has found.

Undoubtedly the highest cost area will be employer contributions. Currently set at a minimum 1% of employees’ earnings, this will increase to 3% from October 2018. The research found that the majority of employers feel that this is set at about the right level. Among the remainder, most said it was too low and expressed concern that contributions at this level will be insufficient to provide a reasonable pension on retirement.

However, the cost increase is not only due to employer contributions – employers have found a significant increase in their workloads as a result of auto-enrolment, most commonly due preparing employee data and administering the pension scheme. Although this work eases off once auto-enrolment has been implemented, survey respondents reported that a significant amount of time was spent understanding what their obligations were under auto-enrolment, and then putting in place the administration to deliver it.

Many of the survey respondents have had to seek external assistance in order to meet the requirements of auto-enrolment. This often started with their current pension provider or a pension consultant, as employers must ensure that their pension meets the qualifying criteria.

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Employers also need to make sure that the payroll software they have in place is able to handle the additional demands as a result of auto-enrolment. Few make do with their existing software and are instead having to adapt their current software or purchase a new system altogether.

“Employers yet to reach their staging date should ensure that they have adequate resources in place, and in good time, to meet the challenges associated with delivering auto-enrolment,” says Sheila Attwood, XpertHR’s pay and benefits editor.