Two weeks to go until it becomes mandatory to enrol staff into company pension schemes, reminds KPMG, and not all businesses are prepared.

Auto-enrolment comes in from 1 October 2012.Under the new rules, the UK's largest employers must take responsibility for enrolling all eligible UK employees into a qualifying pension scheme with other employers phasing in over the next four years.

For many businesses auto-enrolment presents a significant challenge, leading inevitably to increases in costs and administrative complexity.Failure to comply will leave employers liable to fines. But despite the looming deadline, not all businesses are prepared.

Gurmukh Hayre, head of defined contributions pensions, at KPMG in the UK, warns of 'panic-buying' as the implementation date approaches: "Although auto-enrolment has been on the horizon for years now, our experience suggests there is a surprising amount of inertia among businesses in really grasping the nettle.This can result in a certain amount of 'panic-buying' to get ready in time.

"The good news is that for most businesses, even though the timescale is tight, it is possible to hit the phased deadlines.The bad news is that the later they leave it, the more disruptive the process is likely to be and the less opportunity they may have to take advantage of the opportunities that auto-enrolment offers to revamp the employee benefits that they currently offer."

From threat to opportunity

According to KPMG, although complying with auto-enrolment requirements is generally a cost and an administrative issue for businesses, it does present an opportunity to review employee benefits, pay and reward structures at the same time – often transforming what was a cost to the business into significant savings.

Gurmukh Hayre said: "What we are finding is that complying with auto-enrolment often acts as a catalyst to a more wide ranging review of a company's overall approach to staff reward and compensation, addressing such issues as the employee benefits that a company offers, the systems or platforms it uses, the extent to which it allows salary sacrifice and so on.

"Using auto-enrolment as a trigger for a wider reassessment of the compensation framework has two key benefits.First, there is the element of 'piggy-backing' other changes to pay and benefits that would in themselves cause a certain amount of disruption to the inevitable upheaval of implementing auto-enrolment.And second, there are often real cost-savings available as a result of redesigning the reward structure.In one instance we have seen a multimillion cost associated with the implementation of auto-enrolment in isolation, transform into multimillion savings as a result of changing the compensation and benefits systems and framework."

The rules are complex and need careful consideration.Complying with the new requirements will require detailed planning across the business involving payroll, HR, senior management and with pension advisers and providers. The employer's decision about how best to introduce AE is only the first step in what could be a tricky implementation process. Some of the largest hurdles will be for the payroll provider where compliance with the requirements in respect of joining, calculation of contributions, opt out and refunds are complicated and onerous.Communicating with employees is critical and should be integral to the project.

Failing to comply

The consequences of failing to comply are potentially serious and expensive.

Cost of rectification: Unravelling incorrect contributions, investments or other matters is costly and time consuming. Often, the operational disruption together with time and costs incurred in correcting the problem dwarf any financial recompense to make good the situation for employees.

Fines: The legislation imposes fines for failure to comply, which are high and cumulative.

Reputational damage: There will be associated reputational damage if problems arise. The Pensions Regulator will conduct spot-checks and follow up reports from whistle-blowers to enforce compliance. Hence it is imperative employers (and trustees of trust based schemes) ensure that the processes and controls in place are effective from the start and comply with the requirements.

First published 18.09.12