You might have seen workplace pensions in the news recently, including the recent ad campaign from the Department of Work and Pensions. Here we look at what all small business owners should know about the pensions auto enrolment rules.
The new pensions rules affect any business which employs staff in the UK. If you’ve got less than 30 employees, now is the time to be thinking about this, so it’s worth considering the following:
What is Auto Enrolment?
Auto Enrolment is the UK government’s initiative to provide all eligible employees with a workplace pension, automatically. Whereas before you only needed to process pensions if your employee requested to set one up, now staff that meet certain criteria will be ‘enrolled’ automatically into a workplace pension scheme.
It’s a process which has been going on for a few years now, but many small businesses in the UK will have their staging dates – the date on which staff are automatically enrolled – coming up in 2016.
Which of your staff are eligible?
You’ll need to prepare staff for auto enrolment who meet the following criteria:
- Those who are aged between 22 and state pension age
- Those that work in the UK, or someone who usually does so
- Those that earn above £10,000
Do you know your staging date?
For employers with less than 30 staff, this is anywhere between now and April 2017, and is the date on which you will need to enrol your staff onto the new workplace pensions system.
If you don’t know this yet, don’t wait, head over the Pensions Regulator’s website with your PAYE number and find out:
Communication with your staff
Once you’ve identified those that are eligible, you will need to tell them in writing what is happening. Not only will this give them advanced warning of money that will effectively be coming out of their pay, helping to avoid any potential issues. But it’s also a requirement of the process.
Luckily, the Pensions Regulator has a number of letter templates to help you inform your staff of what is happening.
How do workplace pensions work?
As an employer, you will be required to pay a minimum contribution of 1% of gross pay (and the employee will pay in too, hence telling them in advance). These contributions from both employer and employee will rise over time, from 1% to at least 3% by 2018.
Do you have a pension scheme?
If you already have a pension scheme, this doesn’t mean that you’re exempt from the changes that are being put into place. You still need to register the pension scheme that you have already with the Pensions Regulator, to confirm it meets the requirements of Auto Enrolment.
Guidance on this can be found on the Pension Advisory Service’s website here.
Do you need to set up a pension scheme?
If you don’t have a workplace pension in place, or yours doesn’t meet the requirements of Auto Enrolment, it’s best to speak to an independent financial advisor (IFA) or pensions advisor. These experts can help you to find the best pension scheme for your business.
Or you could simply go with NEST, the government’s own scheme.
Do you know what to do once it’s all sorted?
First of all, you’ll need to set your new workplace pension up with your payroll. Most payroll companies and software are now able to handle Auto Enrolment requirements, and many will even communicate with the Pension Regulator regularly for you.
Then – once it’s set up with your payroll – inform the Pensions Regulator that you have set up the workplace pension. This should be done online, and relatively soon after your staging date.
Also, some staff will be ineligible for a workplace pension due to not meeting all the criteria set out above, but might meet them in the future. So it’s likely to be low earners, those under 22, or those on temporary contracts that won’t be eligible. It’s your job to monitor those staff that might qualify for Auto Enrolment, and enrol them when they do.
Furthermore, staff have the option to opt out of Auto Enrolment. This is a choice that can be made only by them, and you should provide them with all necessary information about the workplace pension and its benefits before they make this choice. In no way can you influence this decision, not even telling them they can opt out, and you could be fined if you are found to have done.
Should staff opt out, this is not the end of your obligations to them either. You will need to re-enrol them automatically every three years too.
Remember, Auto Enrolment is not a quick thing to sort out. It often takes up to 6 months to set up. Many advisors expect that most employers will leave it till the last minute, too, and that the pensions companies will not be able to cope with the massive demand they expect—so we strongly suggest getting started as early as you can.
Should you need to postpone, there is an option of deferral. However, this is a maximum of three months, and you will still need to continually assess your employees – so it’s perhaps better to, if you can, get it sorted out sooner rather than later.
Should you need help with Auto Enrolment, there are a number of ways you can access it. The Pensions Regulator is a great place to start, however we would advise that you do so quickly. As the longer you leave it, the more stressful it will be!
About the Author
Many thanks to Kirsty Senior for providing this advice for our visitors. Kirsty is Director and Co-Founder of citrusHR, who deliver a fresh approach to small business HR.