Pensions auto enrolment – how to get started
Pensions auto enrolment (AE) is the law and it’s making its way to your business NOW!
As we go through 2017 and beyond, more and more companies will have to auto enrol their staff into an approved pension scheme and this blog gives an overview what’s involved.
There are three big areas to work through:
- Preparing and choosing a pension scheme
- Running your pension scheme
- Compliance declarations
Preparing for pensions auto enrolment
Every company is being given a “Staging Date” which is the date at which it must start to auto enrol staff in to an approved pension scheme. You can find your company’s staging date on the Pensions Regulator website but you will need your PAYE reference number to access your staging date. The sooner you know your staging date, the sooner you can begin to plan.
Next you choose an approved pension scheme for your company.
The Government has a pension scheme provider – NEST. One of the roles of NEST is that it cannot turn away any business that comes to it wanting to set up a scheme. But NEST is far more positive than just being the lowest common denominator and many employers will undoubtedly set up NEST schemes, if only for the peace of mind that it is Government-backed.
There are several other approved pension providers and you can find out more about the approved pension schemes here.
When you’re setting up your scheme you will need to decide the contributions that your business and your staff will need to make. Details are available here but in essence the employer’s contribution is rising from 1% to 3% between now and April 2019 and the employee’s contribution is rising from 1% to 5% over the same period. Employees may also contribute more money by making “Additional Voluntary Contributions” (AVCs).
When choosing a scheme and setting contribution rates an employer might find it useful to engage a pensions adviser to help make the choice and to show that the decision was made in a considered way.
Click here for The Pensions Regulator’s guidance on choosing a scheme.
Running your pension scheme
At the outset of pensions auto enrolment, an employer has to auto enrol every employee who is an “eligible job holder” who is NOT already in an approved pension scheme. In most businesses this will mean most, probably all, employees.
An eligible job holder may opt out of being auto enrolled but the employer is NOT allowed to influence the employee’s decision.
Having worked out which employees are joining the pension scheme your payroll process does most of the rest of the work.
It’s important to make sure you have your employees’ details stored correctly in your payroll software because the software will look at data such as earnings and age and make the calculations of how much the employees and the employer are to contribute each month.
Once the payroll has been completed a report can be produced which summarises the pension contributions of each scheme member and also the employer and this is uploaded to the pension provider’s website. Shortly thereafter the pension provider will take the contributions by direct debit.
Make sure your cashflow model takes this into account!
And mostly from here you should be on automatic pilot. Employees come and go, pay rises come and go and the contribution levels will change, but the process should tick along quite smoothly.
Two compliance declarations are worth knowing about:
- Declaration of compliance within three months of the scheme’s staging date to confirm your scheme has been set up properly
- Three-yearly re-declaration of compliance to confirm that re-enrolment duties have been complied with
You can learn more about compliance declarations here.
Pensions auto enrolment summary
Workplace pensions are the law and your business is very likely to be affected.
There are scare stories about whether the UK pensions industry has the capacity to handle all of the auto enrolment due to happen in 2016 and 2017 but, whether or not this is an issue, our advice is for businesses to prepare as soon as they can.
Many businesses will simply find themselves and their staff making routine, statutory pension contributions via their payroll month-in, month-out. But the UK business world is a diverse place and there may be exceptions or details that apply to your business which you need to know about.
The Pensions Regulator website is the place to look!
Your costs will rise and your staff’s take-home pay will suffer a further deduction on top of PAYE, NI etc. So budgeting for the new circumstances will be important for everyone. It almost goes without saying that communication with your workforce will be essential.
Like a lot of things, once you get going it will probably turn out to be rather easier and less scary than it looks.
So start looking at workplace pensions now and if we can help you with auto enrolment, please give us a ring!