Pensions
Pension checklist: What you need to know about auto-enrolment
Let’s make one thing clear. Pensions are a pain. Where’s the fun in saving hard-earned cash for the future?
To make matters more complicated, new government legislation means that all employers must now enrol their staff into a workplace pension scheme and, while the process is straightforward enough, many licensees are nervous and putting the whole thing off.
With the Government staggering the implantation of the process, many large companies have already begun auto-enrolment but, for small companies with less than 30 staff, the deadline is fast approaching.
Pensions Regulator video
This year, over 500,000 small employers will be affected by auto-enrolment with an estimated 1.8 million employers due to reach their deadline by 2018. This presents a problem for the “hundreds of thousands of the smallest companies” who are still unsure about what the legislation entails, according to The Pensions Regulator.
'Confused'
“There’s an awful lot of hullabaloo surrounding auto-enrolment and the more the Government try to simplify the issue through advice booklets and TV ads, the more confused and concerned people are becoming,” Lloyd Sims, pensions expert at Rosyln’s pub accountants, says.
Who is eligible?
Any member of staff who is currently:
- Aged between 22 and the State Pension Age
- Earns over £10,000 annually
- Working or ordinarily works in the UK, and
- Isn’t already in a government-approved pension scheme
“At the end of the day, licensees just want to run their pub – once they’ve gotten on top of this legislation, they can go back to doing exactly that.”
Research by online pension advisors Wealth Wizards also shows that 38% of working Brits have no idea what auto-enrolment means, rising to 50% among 18-24 year olds – as much of a drag as pensions can be, employers have a duty to take care of their staff’s best interests.
It’s time to get clued up.
What’s the law?
- Eligible staff must be enrolled into a workplace pension scheme.
- It was introduced in October 2012 as part of a Government initiative to tackle the growing concern of poverty among the elderly.
What’s the cost to employers?
- Employers must pay 1% of their staff’s total pay, known as ‘qualified earnings’, into a pension scheme. (Qualified earnings include salary, overtime, bonuses, commission, statutory sick pay, statutory pay someone receives during paternity, maternity or any other kind of family leave.)
- Setting up the pension scheme can be outsourced at a cost of around £400-500, according to Roslyn’s pub accountants.
Checklist for pension auto-enrolment:
- Confirm staging date
- Communicate and explain incoming changes with staff
- Formal assessment ensuring staff details are accurate and how many employees will be eligible
- Budget for auto-enrolment
- Choose a payroll provider
- Install payroll software
- Fill in automatic enrolment online declaration with The Pensions Regulator – must be completed within five months of the staging date
When must the scheme be in place?
The deadline, known as the staging date, has been staggered depending on the number of employers working for a business as of April 1 2012 – the more employees you have, the sooner you have to comply.
- To work out precisely when the auto-enrolment rules have to be applied, enter your PAYE reference into The Pensions Regulator website.
- This number can be found on letters you receive from The Pensions Regulator about auto-enrolment. If you don’t pay your staff through a PAYE scheme, your staging date will be 1 April 2017.
Opting out and postponement
- All members of staff have the right to opt out of the pension scheme but employers CANNOT persuade them to do so and must remain completely impartial or face hefty fines.
- Employers can choose to push back the time they automatically enrol their workers by a maximum of three months. Given the transience of the hospitality industry, this can be especially helpful for new employees, which may not be working for you in three months. However, a worker still has the right to opt into the scheme immediately, if they so choose.
Choosing a payroll provider
- National Employment Savings Trust (NEST) - Set up by the Government to ensure employers can access a pension scheme and comply with the new legislation. It also has a public service obligation, which means it must accept all employers who wish to select it as their auto-enrolment scheme provider.
- Now Pensions - Relatively new to the UK but boasts over 40 years’ experience in running a low cost auto-enrolment scheme in Denmark.
- The People’s Pension - New but is administered by B&CE, managers of the largest stakeholder pension in the UK.
Top tips for employers
Five top tips for employers approaching auto-enrolment
Morten Nilsson, CEO of workplace pensions provider NOW: Pensions, said: “For anyone who runs a small business, auto-enrolment can feel daunting. Smaller employers tend to have little or no experience of pensions, they don’t have the dedicated in-house resource that larger companies enjoy, nor do they necessarily have the support of an expert adviser. The key is to tackle it early and plan.”
1. Plan ahead and prepare
The Pensions Regulator recommends employers begin their planning 18 months in advance of their staging date. However, of the companies that signed up with NOW: Pensions in the fourth quarter of 2015, 27% completed their application either very close to their staging date or after the deadline had passed. This is an improvement on Q3 when 37% of firms left it late.
Morten Nilsson says: “Leaving auto-enrolment to the last minute will inevitably result in increased administrative pressure and unnecessary stress. The simple truth is the longer businesses allow themselves to implement the changes, the easier the process will be.”
2. Include auto-enrolment in your budget forecasting
The cost of implementation, planning, payroll modifications, assessment, communications and record keeping will depend largely on the decisions an employer makes regarding suppliers, providers and their current internal structures. Some employers may also want to seek external advice so will need to budget for this.
Initially, contribution levels are set quite low but by 2019, employers must pay a minimum of 3% of qualifying earnings per employee into a pension scheme.
3. Think carefully about scheme selection
Employers should take the time to consider their provider. The decision they make will have lasting consequences for their workforce and shouldn’t be taken lightly. For employers completely new to pensions, it may be wise to seek guidance from an expert adviser.
Good quality schemes should be able to demonstrate their quality through third party assessments such as The Pension Regulator’s master trust assurance framework or Pension Quality Mark, these are designed to highlight schemes that are well governed with low charges and good member communications.
4. Think about your contribution structure
The reality is auto-enrolment minimum contributions won’t be enough for most people to be sure of a comfortable retirement. However, NOW: Pensions’ research suggests nearly one in three (30%) firms plan to contribute more than the legislative minimum when they enrol their employees into a workplace pension.
Over half (57%) of those surveyed who intend to pay more than the minimum say they believe it will help with the recruitment and retention of employees.
This approach makes sense as behind holiday entitlement, generous pension contributions are the most highly rated benefit cited by employees.
5. Harness the power of payroll
For auto-enrolment to run as smoothly as possible, your payroll system needs to have an automated exchange of data with your pension system. NOW: Pensions’ experience is that employers supported by a payroll bureau are significantly better prepared for auto-enrolment than those that are managing the administration of their schemes alone.
Professionalising your payroll ahead of introducing auto-enrolment is wise and the benefits shouldn’t be under estimated. One of the biggest stumbling blocks for all businesses tackling auto-enrolment is ensuring all payroll data is complete and up-to-date. A missing date of birth or national insurance number can cause untold problems further down the line.
