Pensions Auto-Enrolment 7 essentials every employer must know
Visit fpb.org MGAE001 Dec2015
Pensions Auto-Enrolment 7 Essentials Every Employer Must Know You may have seen the adverts on TV and in the newspapers publicising the new compulsory pension scheme being rolled out by government. Small and medium-sized businesses won’t be have to start running the scheme until between 2015 and 2017, depending on the number of employees they have, but should SMEs start preparing now? The scheme, which requires businesses to automatically enrol all staff into a pension, began its rollout in October 2012, starting with big businesses (it’s their employees that are the target audience of the Department of Work and Pensions’ “I’m In” ad campaign). We’ve recently received reports that SMEs are being pressured by payroll companies to start preparing (i.e. investing in payroll software) up to two years in advance. Whilst this may be slightly premature, especially for businesses not affected until 2017, it is worth making some preparations now to prevent being caught out in the long run.
What does it mean for businesses? From your staging date (see below), you will have to automatically enrol all qualifying employees into a pension scheme, which you will have to make a contribution to. This will start off at 1%, rising to 2% from 1st October 2017 and 3% from 1st October 2018. Other duties will include providing certain information to employees at the right time and removing people from the scheme if they choose to opt out. Persuading workers to opt out is strictly prohibited.
What should I be doing now? 1. Know your date – when does auto-enrolment apply? We often get asked when businesses should start preparing, but it is best to work out when your staging date is, understand your responsibilities and the impact that will have on your business, and then work back from there. A pension scheme needs to be set up months in advance to be ready for you to stage, and you must have scheme in place and start automatically enrolling relevant workers into it. Your staging date is determined by the number of people in your PAYE scheme based on information held by HMRC on 1st April 2012. You can find your staging date by using The Pensions Regulator’s staging date calculator (you will need your PAYE reference for this).
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2. Know your workforce – who is, or may become, eligible? There are different types of worker within your firm based on age, earnings and job description. This may also include the self-employed, contractors and personal service workers. Each person needs to be assessed to see if they are eligible and what it means to them and the firm.
3. Know your costs – how much from the start and thereafter? The minimum contribution levels start at 1% for a firm, rising to 3% in October 2018 but what is this percentage based on? There are four different options depending on how you pay your workforce and it is important for you to know which one is the most appropriate for you. A further cost consideration is the potential tangible cost of upgrading payroll systems (see point 5.) and time cost for the person(s) involved in the implementation and ongoing servicing of the pension scheme. The contributions you will need to make, increasing over three years, will be an added cost for your business if you don’t already run a pensions scheme. It is therefore worth building this extra cost into any long-term financial projections.
4. Assess pension schemes If you already have a pension in place then it is unlikely it will be fit for purpose even if you already pay more than the minimum contribution level as there are other requirements that need to be met for a pension scheme to be classed as a ‘qualifying scheme’. If you don’t have a pension scheme then it is a case of getting one set up that suits your firm from a cost and operational point of view and you may need to start assessing the options available to you. This includes the National Employment Savings Trust (NEST), set up for the specific purpose of ensuring that all employers (especially those with low to medium earners) can access pension savings. NEST must accept all employers who apply. Alternatively you can choose from a wide range of different pension providers. More guidance on choosing a provider on the Pensions Regulator website. You will need to contact providers to understand their joining process and timescales involved.
5. Assess impact on HR and payroll The considerations here are the initial and ongoing assessment of the workforce, ensuring contribution levels are correct and paid on time, dealing with joiners and leavers, managing opt-opts and re-enrolment dates, as well as the important link between the payroll system in place and the new pension scheme.
6. Decide how to communicate these changes The workforce need to be informed about the pension scheme with regards to the cost, benefits and the overall effect on them so that they can make informed decisions. This can be done in a way that best suits your firm, for example as a group briefing, an internal newsletter, an insert to go in payslips or centrally on a noticeboard.
7. Know about the record keeping requirements As well as informing The Pensions Regulator of your designated pension scheme you will also need to keep records with regards to information such as contributions and opt-outs. This can usually be arranged for the pension scheme provider to do this on your behalf but you must ensure that they are kept as there are large fines to be levied if the regulator asks for records that are inaccurate or do not exist. To make sure all correspondence from the Regulator, including reminders, goes to the right person within your organisation, you can nominate a preferred point of contact. The Regulator will write to you 12 months and then again three months ahead of your staging date.
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Next steps Before your staging date you must: •
Choose a pension scheme
Check that your payroll software will be able to deal with the changes
Change your processes to prepare the data to send to that scheme
Inform workers of pension scheme.
You will need to register with The Pensions Regulator no later than five months after your staging date.
Free consultation To help ensure our members comply with the changes we are offering a free initial consultation and written assessment report explaining timescales, illustrative costs and how this will work for your business, through our partner who has extensive knowledge of the requirements. They can also provide a cost-effective extensive analysis, set-up and ongoing advice service for your new pension scheme.
For more information on the changes and how we can help, call our helpline on 01565 626001 or visit fpb.org.
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7 Essentials that every Employer needs to know about Auto-enrolment