As part of Small Business Advice Week we are running a series of articles with helpful advice and tips for SMEs. Graham Wingar has written the essential guide to auto enrolment for small businesses, outlining the government’s changes to pensions and your responsibilities as an employer.
In order to enhance personal pension funding, the government has drastically changed the laws and regulations around pension provisions supplied by employers. This article will give you a basic outline of these changes and your responsibilities as an employer. The government has changed details from the point of first considering auto enrolment until now so it is important that you keep up to date with any changes in legislation going forward.
“Ensuring you have the most suitable pension scheme in place is paramount in order to offer a quality benefit to your employees while reducing the costs and time associated with administering the scheme”
The duties of an employer pre-auto enrolment
If you employ less than five members of staff you currently do not have any responsibility or obligation to offer your staff pension benefits. If you employ five or more staff the minimum requirement is that you have to provide access to a stakeholder pension scheme. There is no obligation to make contributions either as an employer or an employee.
The government’s aim
Due to employees having to opt in to the pension scheme and there typically being no employer contribution the current schemes meeting the minimum requirements have very poor take up. In order to improve take up and therefore increase private pension funding, the government are taking away these two main barriers by bringing in auto enrolment and compulsory employer funding. This means that instead of employees choosing to enter the pension scheme they will be automatically enrolled into the scheme and contributions taken.
Your staging date
The date by which you have to be compliant is governed by your number of employees on the 1 April 2012 and your PAYE reference number. The earliest date was 1 October 2012 for employers with 120,000 or more employees gradually working through companies with less employees with the earliest start date for a company employing 30 or less employees will be 1 June 2015.
There is a comprehensive list of staging dates available from the Pensions Regulator.
From their prospective staging date, any employer employing at least one person will be legally obliged to
• Set up and register a pension scheme suitable for auto enrolment
• Assess all staff eligibility at every pay period
• Automatically enrol and make contributions for all eligible jobholders
• Enrol and make contributions for non-eligible jobholders who wish to join
• Manage the auto enrolment: including the joining and opt-out process
• Keep records on how they have fulfilled their responsibilities
In order for the scheme to be classed as qualifying it must meet minimum contribution levels. There are different methods of assessing qualifying contributions but below is the simplest and is based on percentages of the employees total remuneration. The contribution level is to be bought in over three stages.
In order to ensure compliance with the employers responsibilities, the following three stage process for non compliance has been put in place by the Pensions Regulator.
Stage 1: compliance/ unpaid contribution notice
This will detail the breach and detail the timescale over which the employer has to put it right. Interest may be required on unpaid contributions.
Stage 2: fixed penalty notice
If the breach has not been rectified by the given time a fixed penalty of £400 will be applied.
Stage 3: escalating penalty
If employer continues to fail to comply with the first and second notice, then a daily penalty will be payable based on the number of employees.
Ensuring you have the most suitable pension scheme in place is paramount in order to offer a quality benefit to your employees while reducing the costs and time associated with administering the scheme.
These changes are likely to have great implications on business planning so be sure to understand the effect it will have on your business over the coming years.
For further information on auto enrolment and guidance on how to become compliant speak to a financial adviser who specialises in auto enrolment. They will be able to ensure your business is fully compliant with the new government rules.