Could Contractual Enrolment be used instead of Auto Enrolment?

Contractual enrolmentWe have been getting an increasing number of questions around the use of Contractual Enrolment and what impact it has on Auto Enrolment.

Firstly, what is Contractual Enrolment?

Well to be honest, it is basically how most pensions were done before Auto Enrolment. Using a GPP as an example, an employee, as part of the T&C’s in the employment contract, would be offered a pension. They would have to sign up to it, agree to have money taken out of their pay package etc. maybe even have contributions paid through Salary Exchange . In terms of the employer’s duties under the Pensions act 2008 legislation, contractual enrolment will tick a lot of boxes, some tangible to the legislation, some are ‘’nice to haves’’, but it does not take all the employers duties away.

I have tried to outline some areas and points around Contractual Enrolment below:

Benefit rather than compliance

Some employers do view Auto Enrolment as a tax, (well that’s because it is…!) but it could be turned on its head and used in a positive “I care about my employees” way. Using Contractual Enrolment to offer a pension to the workforce earlier than required could be advertised with a positive spin, rather than “we have been forced to give you this…” It really will depend on the employer’s opinion to the “tax” issue, but putting a positive spin on something that has to be done, can only be a good thing.

Requires workers consent

So Contractual Enrolment by default adds more work to the Enrolment process, one of the good things about Auto Enrolment (depending on whose point of view you are looking at it from!) is that the eligible employee does not have to do anything to “go” into a pension scheme. Contractual Enrolment requires a signature and potentially a load of additional paperwork – this depends on the type of pension and provider you are using. Now on the plus side for advisers, if you can get an employer to pay for your time (as commission is not available any more) then you will have additional revenue, the problem is getting the employer to pay.

Compatible with Salary Exchange

Salary Exchange is probably one of the best ways to pay into a pension scheme; it has some National Insurance advantages for both the employer and employees Also most of the concerns that are banded about around “employees may struggle to get a mortgage” are less important these days with lenders mostly interested in affordability rather than gross salary. There are a few things that you need to be careful of when using it; like you cannot insist on Salary Exchange being used under Auto Enrolment. Even if you make it compulsory for Contractual Enrolment, an employee can chose not to join the pension and when the staging date comes round you will have to assess them and if eligible then they will need to be enrolled into something at a gross level (probably to opt out again, but hey!)

All employees are “in”

(‘’I’m in’’…I hear you cry!) We meet so many people that say ‘’ I have got a pension scheme I am covered’’… Yes, it is part of the battle, but not the complete solution. Contractual Enrolment will avoid the problems of assessment – you will need to do everything else though. You will still have to do the communications, work out the contribution levels, some pension conformation stuff, the storage of records and certification proof, registering with the Regulator and then working out what to do with new entrants to the pension and… Honest… it is easier…

Maybe get access to a high street name

It is fair to say (and we have been writing about it for a while now) that the high street providers are cherry picking the schemes they want. So Contractual Enrolment may allow you to get one of those high street names in advance of a potential ‘’closing of the books’’, especially if your client is offering a good matched scheme of say 5% and 5%. Although we were recently told a story about a company with 52 employees with an average salary of £40,000 and no terms were offered by the 7 providers that were approached – I must caveat this by saying I do not know what the contribution levels were in this instance. Still, you have to question what you have to do to get a high street named provider these days. Overcomes capacity crunch issues

The virtual Tsunami is coming…

some great stats that you can use here; if you include all the companies that need to enrol by 2018, on average there are around 40,000 firms at each staging date from 2015 onwards. Even if there were only 10 employees per firm that is around 400,000 employees that need to be assessed and potentially enrolled into a qualifying workplace pension scheme at each staging date… by offering Contractual Enrolment your clients can avoid all the potential pit falls that could possibly happen (no access to advisers, no access to a pension scheme, increased costs of setting up, no access to admin tools, fail to deliver against their duties, pay massive fines…) and thus allowing them to focus on their business and achieve compliance at a fair and reasonable cost.

Peace of mind and being able to deliver a good service

Getting it over with now, could just give your client peace of mind and allow them to focus on their business– although according to the research only a quarter of SME’s have started to look at Auto Enrolment and most are no more than barely aware of its existence (not too sure I believe the research completely on this one!) If it is something that your client is worrying about, then Contractual Enrolment is a good way forward. Also as you may (potentially) have more time available (or more realistically not have as many clients going through Auto Enrolment) you will be able to offer your client a better service. I am not saying that in the future you will purposely offer decreased levels of service, but you will be able to offer a little more hand holding, a little more comfort because of the fact you are not running around like the proverbial ‘’blue fly’’ dealing with a lot of Auto Enrolment clients.

Your client is fully set up and paying you

This point may not be of the highest importance to your client, but it will help with your cash flow, but possibly more importantly, you will get some experience on the delivery aspects of the compliance. You will have an understanding of how you are going to deliver a service. Getting paid whilst learning, modifying and (let’s face facts here) creating the processes required to deliver Auto Enrolment within your business is ‘’kind of nice’’.

Just a few bullet points to understand and think about if you are going to try and sell Contractual Enrolment:

  • You will need to amend existing contracts of employment – there are some rules and timelines involved here – we have a really good HR partner who we can introduce you to.
  • Communications are still required – different from Auto Enrolment but still required
  • Scheme reviews required – you will need to make sure the scheme is suitable under the Auto Enrolment rules for future post staging date joiners
  • You still need to register with tPR
  • Self-certification will need to be used (QE is always the cheapest way for the employer) and that needs to be communicated with the tPR.
  • No opt out period (refund) – dependent on the pension scheme rules this may or may not be true, but you will need to check
  • May need a separate AE scheme at staging date (probation, age restrictions, category of worker, new people, non-joiners on Contractual Enrolment )
  • Declined Contractual will need to be assessed – so you will need the tools to do that
  • Cease membership – may need to be assessed – so you will need the tools to do that
  • Postponement – not available, well sort of not true…there are a few ways round this. You will need to use a probation period in your employee T&C’s (no more than three months) have them on the Auto Enrolment rules and postpone them – it I the same but different…call me if you want to discuss…

So from our point of view you have three selling options: (please note that option 1&2 are sell now options, go for Contractual Enrolment first then go for the AE Ready option if they do not want to pay contributions now..)

  1. Contractual – get it in and running now a. HR help potentially needed (we have an HR partner)
  2. Auto Enrolment “Ready” a. TAP Assist have suppliers who can set this up now
  3. Keep your client “sticky” – Make sure you are the ‘’go to’’ person – News, information and AE updates

Contractual Enrolment is a good option to use, be aware of the requirements that it brings into play, but it should be something you should try and sell. We have services and solutions that can help you and if you can get Contractual Enrolment in, then try and move them to something like our Auto Enrolment ready service.

Please contact TAP Assist if you would any more information on the above. michaelm@tapassist.co.uk