In 2015 1.5 small and micro sized businesses must face implementing pension auto enrolment. It seems according to the media that many employers are not ready for pension auto enrolment. A Pension Regulator report shows that half of micro businesses do not even know when they are meant to be compliant. This is despite the wealth of information out in the public domain. Many small businesses have by now been informed by letter when their staging date will be and are given ample notice to comply.
A recent article in the Independent newspaper http://www.independent.co.uk/news/business/sme/small-talk-many-employers-face-penalties-over-pensions-autoenrolment-9778756.html states that employers are sleepwalking their way past a legally binding deadline. This year 12,000 small businesses with 62-89 employees should have complied by 1 July 2014 but asked for a three month postponement which they are legally entitled to do. However, apparently many have still not complied and will face a fine by the Pension Regulator.
Research done by NOW pensions highlights that many small businesses are approaching advisers very close to their staging date or even after the staging date has passed, which is far too late. Furthermore a survey done by Sage payroll software of IFAs showed that many of their clients don’t see auto enrolment as their top priority and only 1 in 5 businesses are aware of the process. This is despite an extensive government advertising “I am in” campaign using top celebrities such as Theo Paphitis to spread the word.
Auto Enrolment is the Government’s flagship legislation to solve the country’s £28 billion pension black hole. It began in October 2012 initially with very large companies some of whom have struggled despite the resources available to help them comply such as Finance Directors and HR departments. No matter what employers and small businesses think about the process they must put a workplace pension in place or be at risk of huge fines. Unfortunately many do not have the know how, resources or time therefore early intervention is key to falling foul of the Pension Regulator.
The Pension Regulator is policing the system. Once a pension scheme is in place and auto enrolment has been undertaken an employer must confirm via a compliance tick list and submit that to the Pension Regulator within five months. If companies fail to implement the auto enrolment process they will be tracked down and dealt with very harshly. Small businesses with the many costs they face, can ill afford to shell out unnecessarily.
The Pension Regulator recommends starting the process 12 months before the staging date and this is very good advice. There is a lot of work to do – finding a provider whether that is for a private pension or NEST the government run scheme, setting up administrative processes and consulting with employees. My experience is that many small businesses and employers are burying their heads in the sand, but it is the elephant in the room and will not go away.
In accordance with the Pensions Act 2008 from October 2012 UK companies must have a pension in place into which employees will be automatically enrolled. This could be an existing pension eg group personal pension or stakeholder pension so long as it meets the qualifying criteria. However if a company does not have a pension scheme in place or do not introduce one then they can adopt the government’s scheme, National Employment Savings Trust (NEST). There is no obligation to offer the NEST scheme to employees. Although its structure may suit some companies, it may not be suitable to others. However, it could be possible to offer a company pension scheme to some employees and NEST to others. NEST is designed to simple and easy to use. The government has decided to introduce this to make it easier for people to save for their retirement as many are not currently doing so and to alleviate the ticking time bomb of the pension burden as the population grows older.
Auto-enrolment for pensions will impact on all employers between 2012 and 2016 depending on the size of the company and the number of employees, which will be established from PAYE records. A company pension scheme must be compliant with government rules and companies must pay in contributions from both the company and their employees. UK employers will be required to contribute a minimum percentage of each employee’s eligible earnings into a pension. Employees will also need to pay a personal contribution into a pension. The total minimum percentage contribution required of both employer and employee is being phased in. In 2012 the minimum percentage is 2% rising to 8% by 2018. Contributions can exceed this amount however.
Employers have to automatically enrol workers who:
Are not already in a qualifying workplace pension scheme;
Are at least 22 years old;
Are below state pension age;
Earn more than £8,105 a year; and
Work or ordinarily work in the UK (under their contract)
These are eligible workers. There are also non-eligible workers who fall outside the age range of 22-74 earning above £5,564 and below £8,105, they have the right to opt in and entitled workers who earn below £5,564 per year who have the right to join the pension scheme. It is important to identify what category the employees fall into. Employees are able to opt out of the scheme within one month of membership. Any contributions they have made in that time must be refunded. Employees must be identified for auto enrolment once every three years.
It is important to prepare early in good time for the appropriate staging date. Companies need to nominate a key contact in the company who will be responsible for pension auto enrolment. Once the assessment stage has been completed it is important to communicate the changes to the workforce with the correct template documentation. Once implemented pension records need to be keep for at least six years.
It is against the law to coerce employees into opting out of pension auto enrolment. For companies who fail to comply with the statutory legislation the Pension Regulator has the power to impose huge fines.