For smaller firms, auto-enrolment is coming round the mountain.  Chris Howell explains what  you and your business should be aware of, before it’s too late.

Give me the basics

In an effort to encourage savings for pensions, the government has introduced auto-enrolment for employer’s pension schemes. The very large companies are already in and between now and 2018 every employee over the age of 22 and with earnings, currently, in excess of £8,200 approximately will find themselves auto-enrolled.

“It is strongly recommended that all employers, irrespective of the size of their staff start the process of selecting the best pension scheme for them which will provide auto-enrolment as early as possible”

How much will I have to contribute?

There will be a compulsory contribution to the arrangement from both employee and employer of a total of 8 per cent by the end of 2018 and at least 3 per cent of this must be paid by the employer.  In the first year the contribution rate required is 1 per cent each from employee and employer.

Is there any help?

There are a great many firms that will join but from this time next year the numbers are likely to be several thousand firms every month.  The possibility of that many firms getting it all correct are relatively small without help.  There is a ‘fall back’ scheme National Employers Savings Trust (Nest) and the majority of firms are likely to find themselves in that arrangement.  Or you could aim to get it right first time by finding an independent financial adviser who specialises in auto-enrolment.  They will be able to guide you smoothly through the maze.

Do I have to join?

No, you don’t have to join. But that means actually ‘opting out’ and that has to happen within 30 days of auto-enrolment, at least, that is what the rules say.  But, remember that once auto-enrolment takes place there will be a salary deduction of the required percentage.  Most employers pay towards the end of the month but require the salary information at least a week before the payment day.  Therefore to ‘opt out’ before the first deduction is made only allows a relatively short timespan and whether that is feasible when there are likely to be 30,000 or more employees auto-enrolled and a fair proportion of these will wish to ‘opt out’ there is going to be a log jam and it may take time to sort it all out.

Therefore it is strongly recommended that all employers, irrespective of the size of their staff, where there are eligible staff, starts the process of selecting the best pension scheme for them which will provide auto-enrolment as early as possible.  Already several pension scheme providers have said that they will not be able to consider setting up a scheme if it is within 6 months of the day when the firm has to start auto-enrolment.

Staging dates

For firms with fewer than 50 employees the staging dates are between 1 June 2015 and 1 April 2017.  To identify any individual firm’s staging date, this can be picked up from the Pension Regulator.