Are you ready for Auto Enrolment or are your burying your head in the sand?
No matter the size of your business you will have to automatically enrol your employees into a work place pension in the near future. This applies even if you have just one employee that meets certain criteria.
For many businesses Auto Enrolment will become an administrative headache with managing costs, the burden of compliance and ongoing communication with employees, pension providers and the Pension Regulator.
The majority of my clients are running small to medium sized businesses so my main focus at the moment is proactively helping clients to manage the transition to Auto Enrolment. By providing support and guidance early on in the planning process clients aren’t feeling rushed or under pressure. They’re also confident their Auto Enrolment systems are compliant and we’re managing the costs and tax relief effectively.
There is little to worry about if like all things you plan well ahead – I’m recommending my clients allow around 12 to 18 months of planning to manage the process smoothly and avoid sleepless nights and hefty fines.
What exactly is Auto Enrolment?
People are living longer, not saving enough for retirement, the cost of living is rising and the state pension on its own will not be enough to live on. As a direct response the last Government devised the Auto Enrolment scheme to encourage saving into a pension fund. The onus is now on the employer to take care of their employees’ pension.
The Government is expecting that by 2018 every UK employee, meeting the eligibility criteria, will be automatically enrolled into a pension scheme by their employer. The contributions will be made by the employer, the employee and the government through tax relief.
It’s worth noting the employee has the option to opt out but the employer does not.
How is Auto Enrolment affecting UK businesses?
The Pensions Regulator recently confirmed 99% of large businesses have already completed the process. This is not surprising as most of the larger businesses already had employee pension schemes in place.
The next wave, however, will hit smaller businesses early in 2015 and will have a dramatic effect on them. Business owners are now having to consider:
- Selecting a pension provider – at least 6 months in advance and approved by the Pensions Regulator.
- Administration time: checking employee data
- Compliance obligations:
- automatically enrol eligible employees;
- record all regular communications between employer and the pensions regulator, pensions provider and the employee
- Payroll systems – checking and testing systems are auto enrolment ready or requiring to update their system
- Implementation costs: new payroll system, advice costs
and of course
- Paying staff pension contributions.
When will a business have to join the Scheme?
The scheme started in October 2012 and the Pensions Regulator is rolling it out over a 6 year period starting with the largest businesses with the biggest payroll. The Pensions Regulator is sending letters to every business detailing their staging date – the date all employees meeting the eligibility criteria must be registered in a viable pension scheme by their employer.
Find out your staging date well in advance and start planning for Auto Enrolment by visiting http://www.thepensionsregulator.gov.uk/employers/tools/staging-date.aspx
Which employees are eligible for Auto Enrolment?
The rules about the employee eligibility criteria and tiered rates for contributions can be confusing for many business owners so here’s a simplified summary from the Pension Regulator:
Eligibility Criteria:
| EmployeesMonthly Earnings | Age | ||
| From 16-21 | From 22 to State Pension Age | From State Pension Age to 74 | |
| £481 and below | Has right to join pension scheme | ||
| Over £481 up to £833 | Has right to opt in | ||
| Over £833 | Has right to opt in | Automatically enrol | Has right to opt in |
Tiered Contribution Rates:
| Date | Employee Min Contribution (% of earnings) | Total Minimum Contribution (% of earnings) |
| Before 30/9/17 | 1% | 2% |
| 01/10/17-30/9/18 | 2% | 5% |
| 01/10/18 onwards | 3% | 8% |
At Murrison & Wilson we’re already working with our clients to fully assess their employees’ eligibility and contribution costs in advance to ease the process.
Burying your head in the sand won’t delay the inevitable. Businesses leaving it too late will struggle to find a pension provider in time and to find accountants that aren’t already busy with existing clients.
What Next
Make an appointment about Auto Enrolment Planning now by calling 0141 290 0262 or info@ammu.uk if you have any questions about Auto Enrolment.
I would welcome any comments you have on Auto Enrolment and the impact it’s having on your business.
Until next time.
Bruce