Subscribe Via RSSHow Small Businesses Can Prepare for Auto Enrolment Pensions
As you probably know, all UK small businesses must engage in the daunting task of enrolling their workforce into the Government’s auto-enrolment workplace pension project by 2018.
In the next few years up to 11 million workers not currently in workplace pensions will be automatically placed into pension schemes.
For most small business with little experience of pension schemes the transition will be difficult as they are not in a position to deal with the administrative burden and costs incurred in the Governments auto-enrolment workplace pension project.
This guide aims to show small business owners how they should prepare for the upcoming auto-enrolment workplace pension project.
Get Your Auto-enrolment Facts Straight
Knowledge is power! In this case, knowledge about auto-enrolment will save small business owners time, effort and money. So here’s the key information you need to know to get started:
- Who will you need to offer auto-enrolment to?
Workers who are over 22, under the state pension age and earn more than £9,440 per year (this may rise between now and the staging date) must be enrolled if they are not already part of a qualifying workplace pension scheme. - When will you need to enrol staff?
Staging dates are based on the size of an employer’s PAYE scheme. All small businesses must complete auto-enrolling before 2018. When a business starts enrolment depends upon the category they fit into, based on company size and tax status. You can find your staging date using your PAYE reference on this Pensions Regulator information page. In general you can bring your staging date forward but you can’t make it later. - How much will you have to contribute?
The minimum requirements expected of firms auto-enrolling staff have already been set by the Government, the contribution amount depends upon your staging date. The table below shows contribution levels and dates.
| Date | Employer minimum contribution |
Employee contribution |
Total minimum contribution |
| Employer’s staging date to 30 September 2017 |
1% |
1% |
2% |
| 1 October 2017 to 30 September 2018 |
2% |
3% |
5% |
| 1 October 2018 onwards |
3% |
5% |
8% |
Seek Advice Now
If you have no experience of running a workplace pension scheme you need to seek the help from a financial adviser for guidance on the auto-enrolment process as soon as possible.
Auto-enrolment pensions are extremely complex and not the sort of thing any small business should be entering into unprepared. This detailed guide, Getting ready: First steps to prepare for the new employer duties, aimed at professional advisers and employers with in-house pension professionals will give you some idea of what’s required.
Remember, the closer small businesses like yours come to their staging dates, the more of logjam there will be in the business advice sector. Seeking advice now will give you more choice and probably save you money.
Budgeting
Contributing to employees’ pension pots is yet another expense for small businesses. Auto-enrolment contribution levels (see table) will increase the costs of the workforce, a rise of 3 per cent by 2015. Fortunately, this will not produce any additional tax liabilities as employer contributions can be offset against corporation tax and are not subject to employer National Insurance contributions.
Employers need to assess how much they can expect their costs to rise with auto-enrolment. Things to consider include:
- Opt out rates: The proportion of people expected to opt out from auto-enrolment is from 25 to 50 percent.
- Infrastructure: Is the companies payroll and HR department ready for the additional burden of employee pensions?
- Salary sacrifice: Will employees agree to reducing their salaries in exchange for the lost income being put into their pension plan? This will reduce the amount spent in National Insurance contributions, so reducing costs.
Finding the Right Pension
Since, as a small business owner, you will now be responsible for your employee’s retirement savings as well as their salaries, it is vital you pick a pension scheme that works best for your staff.
There are many providers catering for all kinds of plans, but the advent of auto-enrolment has also brought more providers who offer simplified pensions into the mix for small businesses.
Look for a flexible pension scheme with low charges (<0.5 percent of the pot a year). The taxpayer-backed National Employment Savings Trust (NEST) is one such scheme. The NEST scheme carries a 0.3 percent annual charge and a 1.8 percent charge on contributions, a total annual charge of 0.48 percent.
To help firms choose, The Pensions Regulator provides guidance on questions that need to be asked before settling on an auto-enrolment pension product. See, A quick guide to selecting a good quality pension scheme for automatic enrolment.
Raising Awareness About Automatic Enrolment
Companies are required by law to provide their employees with the correct information in writing about auto-enrolment so that staff know how auto-enrolment will affect them.
The Pensions Regulator in conjunction with the Department for Work and Pensions provides letter and poster templates for employers to use in the workplace, which can be accessed by clicking here.
Naturally, the Government is keen for as many people as possible to save towards their retirement, so included on The Pensions Regulator’s website is a series of messages they would like to get across to employees.
What the Government Wants Employers to Tell Their Staff About Auto-enrolment
Automatic Enrolment Into a Workplace Pension – Key Messages
DWP undertook research to identify effective messages about workplace pensions. These messages can be used in any communication channel or product you choose to use to pass on information to your workers:
1. When you pay into your pension, your employer and the government will too.
2. As your employer will automatically enrol eligible workers into a workplace pension, it’s a hassle free way of saving while you earn.
3. Saving into a workplace pension means you can continue to enjoy the things you like when you retire.
4. Don’t miss out on the money from your employer and the government.
5. You could have 20 years of retirement – average life expectancy is increasing, and living longer means a longer retirement to fund.
6. The state pension is a foundation for your retirement, but you may want more.
7. Starting sooner means your pension will be bigger – the earlier you start, the more time your money has to grow.
8. Starting sooner makes saving more manageable – saving smaller amounts over a longer time period has less impact on your current lifestyle.
9. Even if you’re not being automatically enrolled into a workplace pension, you can still ask to join. You might also get a contribution from your employer and the government too.
Risks to Consider
Failing to comply: Small businesses which do not meet their auto-enrolment obligations or offering pensions which do not comply can be hit with fines of up to £500-a-day (£10,000 for large businesses) .
Poor budgeting: Not adequately preparing for auto-enrolment could see unaffordable pension bills. Plan early to avoid this added expense.
Encouraging staff to opt-out: Employers are banned from offering incentives to their workers to opt-out of an auto-enrolled pension. Employers are not allowed to refuse employment on the basis of a person wanting to join the company pension scheme. The Pensions Regulator provides a whistle-blowing facility to combat this and will issue penalties to those firms found breaching these rules.
Guide to Workplace Pension Plans for Small Businesses Conclusion
Pensions for your employees are positive benefit. So consider the benefits of a company pension and promote these benefits to your employees. The introduction of auto-enrolment presents an ideal opportunity for small companies to review the benefits they offer their employees. You could get a leg-up on the competition by contributing more to your employee’s pensions, so improving the firm’s chances to attract higher quality employees, and retaining those already employed.
