The co-founder and MD of Smart Pension outlines the important questions you need to ask when it comes to pensions, and how to answer them – including what fees your firm might have to pay and how to check the quality of a provider’s pension.
Over the next two years 1.8m small businesses must be signed up for a workplace pension or face penalties. The staging dates for those that have just one or two employees are rapidly approaching – and yet many are still unaware of their responsibilities.
Unlike large firms, small businesses don’t have vast admin departments. The brown envelope from the department of work and pensions with a distant staging date will have been filed and will undoubtedly be just another job on the long list for busy founders, which also happens to include running the company.
Yet new legislation means employers’ responsibilities don’t just involve making regular financial contributions to their employees’ pension pots, but the act of enrolment, ongoing education and regular reporting too.
But with some careful thought, it doesn’t have to be the administrative burden many believe it to be.
So what do small business founders need to know?
New legislation means that even those that have just one or two employees must offer a workplace pension to staff that qualify.
What does qualify mean?
Well, if the employee is aged 22 or over and under state pension age, and is paid over £10,000 a year and based in the UK, they must be offered a pension.
What is a staging date?
It is a specific date by when all staff must be enrolled. It is calculated on how many staff you employ and just means enrolment is staggered in a descending order to avoid a big crush. Companies will receive notice of theirs or can use this calculator to work it out.
Do founders have to do it all themselves?
According to the Pensions Regulator if firms are deemed eligible to provide a pension, they can nominate an adviser to deal with their application and subsequent arrangements if they wish. This could be a financial adviser or a senior member of the team.
If founders don’t educate staff or offer guidance they face a £400 fine. Smart Pension offers an employee education video generator free to anyone, regardless of whether they enrol into Smart Pension’s workplace pension.
Here are the five important considerations for employers when researching a pensions auto enrolment scheme:
(1) Fees to your business
Avoid up front set-up fees. These vary and range between free to £1,500 or even higher. A fee attached does not guarantee extra support or that you are signing up with a more reputable scheme. You should also avoid annual maintenance fees for employers too. This is often a fixed fee and can be anything up to £1,500 a year for a company or a per employee fee. Look out for schemes that are free to employers to set up and run ongoing, like NEST and Smart Pension.
(2) Quality of the pension
There are a number of ways to check the quality of a provider’s pension, with Defaqto probably the best. Defaqto rates all pensions on a scale of one to five stars, five being the best. You can see Defaqto’s auto enrolment ratings here. We’re proud to have five stars at Smart Pension.
(3) Check set-up time
This can vary from minutes to hours, days and quite often weeks. It largely depends on the efficiency of the system and time taken to authenticate data. Check the small print as it should be clear how long the sign-up process is estimated to take and if official papers need to be submitted, meetings held or if the process can simply be completed online, in one sitting. Smart Pension’s system makes it possible to complete auto enrolment in under an hour on any device.
(4) Check if employee assessment and letters generation are done automatically by the provider
A lot of pension providers (e.g. NEST) don’t do assessment and don’t generate letters for the employer, so employers have to manually assess all their staff every month and create the communications with employees themselves.
This is laborious and is easy to get wrong – the rules on assessment are fiddly and subject to change plus the Pensions Regulator is quite particular about the wording of the various flavours of the letters so you don’t want to get them wrong.
Choose a provider that assesses staff and generates the letters automatically so you know you’ll be compliant with the Pensions Regulator’s requirements.
(5) Administration costs to employees
This is the annual fee taken from an individual employee’s funds under administration. The government introduced a fee cap in April set at 0.75 per cent of assets under management but some providers bump that up to and even above 20 per cent in year one with monthly “transaction fee” charges to employees. Choose a provider that doesn’t charge transactions fees.
For more details check the employers section of the independent Pensions Regulator.
Will Wynne is the co-founder and MD of online auto enrolment firm Smart Pension.
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