AUTO-ENROLMENT are the words on everyone’s lips right now within the finance sector. However, the questions that SME employers are begging is, “What is auto enrolment and what does it mean to me?”
The government is so keen to convey the message to your employees that a tax free pension pot is an investment that they cannot afford not to make, that they are advertising on TV during prime time slots.
The reality is that it is you, the employer, who is responsible for ensuring your staff are enrolled into the pension scheme, and failure to do so will result in hefty fines. Although currently, the scheme has only been rolled out to large corporations but by 2018, it will be law that all employers contribute to their employees pensions.
These dates are called ‘staging dates’ and this is when your enrolment duties come into effect. Although The Pensions Regulator is advising for employers to act 12 months before your staging date (Rule One – find out immediately when your staging date is!), ideally the latest you want to be acting is six months prior, because this is not a simple task by any means.
You will need to begin by providing a primary, and in most cases, a secondary contact to The Pensions Regulator in order for them to send the necessary information and guidance to. It is vital that you carry out a review of your staff to help you determine who you will need to automatically enrol. Your employees will be assessed on their age and salary, so it is best practice to complete this task as soon as possible. Your staff will fall into one of three categories:
- Has a right to join pension scheme – You must provide the scheme for them, but are not required to make contributions.
- Has a right to opt in – If they ask to be enrolled, you must enrol them into the scheme and make regular contributions.
- Automatically enrol – You are required to enrol these members of staff into the pension scheme and make regular contributions.
The scheme is opt out rather than opt in, meaning that your employees can say ‘no’ if they decide that they don’t want to have a workplace pension – but this is a decision that every employee will need to make individually and to attempt to influence their decision is illegal.
The contributions that you are required to make start at one per cent before October 2017, when they increase to two per cent for 12 months before increasing again to three per cent from October 2018. Not only will this mean added costs on to your monthly payroll, but there may also be one-off costs to take into consideration whilst you go through the motions of setting up the scheme, such as engaging with an Independent Financial Advisor rather than a corporate advisory firm.
An IFA will be there to support and assist in the initial setting up phases, planning the ongoing finances accordingly. Your accountant will be able to help with the set-up but cannot provide advice on pensions and investments. Your accountant will be able to assist you with the monthly payroll deductions including help with submitting information to the Pensions Regulator.
As it is your responsibility to be clued up on auto-enrolment to discuss queries that arise in the workplace, an IFA may be reluctant to interface with staff but are sure to be able to provide you with guidance on the questions that you cannot answer. By careful planning, it will be possible to minimise the additional cost that auto-enrolment will place on your business, and the best way to start reducing the costs is to start the mammoth task NOW.