Auto Enrolment is a new scheme that has been introduced by the Government and will see employers providing a work based pension scheme for their employees.
Every employer who has at least one employee will have to set up a pension scheme by a certain date and make sure they follow the required procedure to opting their employees into the scheme.
There is still quite a bit of confusion about the scheme and this blog aims to answer some of the most common questions employers have. One thing is sure though – Pension Auto Enrolment is coming and ignoring it won’t make it go away.
Why has Auto Enrolment been introduced?
The scheme has been introduced to encourage people to take responsibility for the financing of their retirement – it has been predicted that without intervention many people would have been retiring in the next 10 + years without enough money to live on. The Government decided that the best way to ensure people started to take responsibility for their retirement plans was to put the onus on employers to make it happen.
Does every member of staff have to be opted in on the Pension Auto Enrolment scheme?
Because the Government sees the Pension Auto Enrolment Scheme as a benefit for your employees they would like everyone to be given the opportunity to join the scheme; however, it will be dependent upon annual earnings, as to whether they are opted in automatically. The requirements of the employer will vary too.
Employees earning under £5824 pa have to be given the opportunity to join, but this is not automatic. The employer is not required to contribute anything but may do so if they so wish. The scheme is not mandatory for this group of low earners.
Employees who earn £5824 and up to £10,000 pa should be given the opportunity to join and if they do, their employer is required to contribute the minimum requirement of 1%.
Employees earning £10,000 per annum or above (and between the ages of 22 and state pension age) must be opted in to the scheme automatically (they can opt out later) and their employer is required to contribute the minimum requirement of 1%. Anybody outside of the age bracket earning over £10,000 still has the right to join a scheme as long as they are at least 16 years of age and under 74. It will however not be a mandatory enrolment.
What is the minimum requirement an employer or employee must contribute?
At the start of the scheme (your allocated staging date) there is a minimum contribution rate of 2% per employee. The minimum contribution from the employer is 1%, leaving the remaining 1% as the employee contribution. However, employers could offer to contribute the entire 2%, or employees could consider negotiating this as a part of their benefits package. Whatever way it is arranged, the total minimum contribution is 2%.
In April 2018, the total minimum contribution will increase to 5%, with 2% as a minimum employer contribution. In April 2019 the minimum contribution will increase again to a total of 8%, with 3% as a minimum employer contribution.
How do you know when your Auto Enrolment scheme must be up and running by?
The Government has issued a deadline for each business; this is known as the “staging date”. To check the staging date for your business go to:
www.thepensionsregulator.gov.uk/employers/what-is-my-staging-date.aspx
and input your Employer PAYE reference.
It is very important that as a business you know when your staging date is and ensure your scheme is ready for that date. The Pensions Regulator has made it very clear that they will impose financial penalties on businesses that are late setting up their scheme or fail to comply with the new legislation in any way.
Where do you start? Who can help?
The first thing you need to do is decide who will manage your Pension scheme and begin the process of communicating the process to your employees.
The Auto Enrolment Pension for your employees can be arranged by any of the following:
- your accountant, someone who you trust and knows you and your business well.
- an IFA, who will know the best pension providers to approach for your size of business.
- visiting the Government scheme website www.nestpensions.org.uk and setting up your scheme with them directly.
- a Pension Provider, but it’s thought they will only be interested in schemes for larger businesses, if you are a small business this is probably not the right route for you.
You may also find it helpful to talk to:
- your payroll agent, if you use one, as they will be involved in sorting out the contribution payments through the PAYE process, and should know about Auto Enrolment.
Once you have contacted someone to help you, make sure you know the staging date for your business. The longer you leave it the more time it will take to set up as pension providers will become increasingly busy as the deadlines draw closer. Remember, ensuring the scheme is set up in time is ultimately your (the employer’s) responsibility no one else’s.
Speak to websters
At websters, we have an IFA who we work with very closely and expertise within our accounts and business team to offer you all the advice and support you need. We are here to answer any questions you may have, and if you need help setting up a Pension Auto Enrolment scheme for your business we can do that too. We are a registered agent for the Government’s own scheme, “Nest”, as we believe that this scheme is the most suitable for all small businesses.
You can call Gary Eves, Accounts and Business Team Manager on – 01223 507080/01485 544178, or email him at gary@tax.uk.com.
Alternatively you can attend any of our regular websters Pension Auto Enrolment events – more details here.
Or you may wish to download a copy of the Employer Notices guide from the Nest website.
You might also be interested in blogs 2 and 3 from this series:
Part 2 – Pension Auto Enrolment (PAE) – the process and benefits
Part 3 – Pension Auto Enrolment (PAE) – planning and implementation
