What is Auto Enrollment?
Under the Pensions Act 2008 every employer has an obligation to put eligible members of their staff in a pension scheme and to make contributions into this. These obligations are called automatic enrollment.
In the past it was up to the employer if they wanted to put an employee into their pension scheme, but since 2012 that choice has been replaced by automatic enrollment where every employer has to offer each employee the chance to join the company pension scheme if they meet certain criteria.
Automatic enrollment is monitored by the Pensions Regulator making sure that all employers fulfill their responsibilities and that they are compliant. Penalties can be charged on employers for non-compliance if the employer does not enroll eligible employees into a pension scheme or if they do not complete all the necessary steps such as completing a declaration of compliance.
A declaration of compliance is a report that a company will need to file to confirm that they are fulfilling their duties as regards offering all eligible staff a pension
Does this apply to me?
Automatic enrollment applies to every employer in the UK regardless of size or the type of business that you are in, you need to make sure that you are complying with your automatic enrollment duties and offering a workplace pension to your staff.
Your obligations will begin on the first day that you start to employ staff, this is known as the duties start date and it is a good idea to make sure that you are prepared for this.
You will need to make sure that you have a pension provider scheme set up and that you are ready to make pension contributions into a workplace scheme on behalf of your employees. You can set up Pension Schemes with companies like Smart Pension, Nest, Peoples Pension, Aviva. There are many more that also offer automatic enrollment compatible pension schemes.
You will need to enroll employees in to a workplace pension scheme if they meet these criteria
Work in the UK
Aren’t already in a suitable workplace pension scheme
Are in between the ages of 22 and State Pension Age
Earn more than £10000 for the current tax year. .
How much do I need to pay?
There is a minimum amount that has to be paid into the pension pot by you and your employee. These are currently 5% from the employee and 3% from the employer.
These amounts apply to anything that your employee earns between £6240 and £50270 in the tax year, this is called the qualifying earnings. So, if you have an employee earning £20,000 per tax year their qualifying earnings would be £20,000 - £6,240 = £13,760. So, the pension contribution rate would be applied to that amount and would be due to be paid on to the employee’s pension pot.
You can also set the contribution rates so that they are applied to the whole of the earnings and not just the qualifying earnings.
What Pension schemes should I use?
There are a number of pension providers that have schemes that can be accessed by small to medium sized businesses. These would include NEST, Smart Pension, The People’s Pension and Aviva.
There are a number of factors that you need to bear in mind before you choose a pension provider. There are the costs of running the scheme, will they charge you a fee for using them as your pension provider and how much will that be?
Having a pension provider that easily integrates with your payroll system will make the ongoing duties of sending the pension amounts to be paid each month easier to manage and can automate a lot of the administrative burden of complying with the automatic enrollment duties.
You may also want to look at what type of funds the pension providers are investing into. Having a pension provider that only invests in ‘green energy’ or does not invest in companies that are ideologically not in line with how you want to invest your money may be a factor in how you choose a pension provider.
How can you help me?
We can help you set up and manage your ongoing duties for automatic enrollment on a monthly basis. Sending the details of your pension contributions to your pension provider and helping you keep on top of the declarations that you need to make.
We can help you choose a pension provider that integrates with your payroll and make sure that all your employees are registered and making the right contributions into this scheme and that you are on top of your compliance needs for automatic enrollment.
These are all part of the payroll and automatic enrollment service that we give to our clients and if you need to know more please arrange a call to discuss how we may help you further.
