Our payroll expert, Bryan Pritchard, answers any questions you might have on the incoming auto-enrolment for micro and small firms, with a final checklist to make sure you’re aware of all the ins and outs and what will affect you.
Medium to large UK employers have been dealing with the Pensions Auto Enrolment (PAE) legislation since late 2012. This is the legislation that mandates that the employer has to offer a pension to their staff. If they meet certain criteria, those staff members are automatically enrolled into that pension. The background to the legislation is to encourage a culture of savings for retirement across the UK and no doubt, this culture of savings is linked to the worries that the state pension will have insufficient funds to pay for a living retirement amount. Something that small business owners may not have appreciated yet is that they also are bound by the provisions of PAE and they will also be obliged to make a pension provision for their employers – some already started in September.
It’s worth considering if you count as an exception to the PAE legislation. PAE obligations don’t apply in the following circumstances:
- The company is a sole director company with no other staff
- The company has several directors but none have a contract of employment
- The company has several directors but only one has a contract of employment
- The company has ceased trading, gone into liquidation or has been dissolved
If you think your company falls into one of the above criteria, you must contact the Pensions Regulator. Failure to do is likely to result in legal action against your company.
What is this pension scheme going to cost my business?
You should contact a pensions professional for advice on setting up a suitable workplace pension scheme (the definition of which is provided for by the act). Different pension schemes have different scale charges and you will need advice to find the right scheme for your requirements. When considering the costs of PAE, you need to be aware that in addition to any pension scheme charges, under the provisions of PAE, the employer is also obliged to make an employer contribution to the pension scheme to supplement the contributions made by the employee.
I have heard talk about NEST but what is it?
There is also a pension setup specifically by the Government for PAE, called the National Employment Savings Trust (NEST). Joining NEST is the simple option that is guaranteed to be complying with PAE legislation but this does not mean that NEST is the right choice for your business. Again professional pension’s advice should be taken before choosing any pension scheme.
Which of my employees will be automatically enrolled into my pension scheme?
Small employers either have already or will shortly be receiving a letter from the Pensions Regulator, advising them of their staging date. The staging date is a key step in the auto-enrolment process, as this is the date by when the employer must make a pension provision and be ready to automatically enrol their employees into the pension scheme.
The staging date is a long way in the future, why should I worry now?
If your company is bound by the provisions of PAE, you must not only make a pension available to your staff but you must ensure that the pension falls within the criteria of a “suitable pension scheme” as defined by the legislation.
Plan ahead. You should be thinking of a 12 month action plan to be prepared for your staging date.
What should I do now?
Get advice from a pensions advisor and plan, plan and plan some more. Talk to other business owners about their experiences and make sure you’re prepared.
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