Shaz Nawaz, director of AA Accountants outlines what you should know about the scheme being rolled out as it reaches small and micro businesses – to make sure you’re not vulnerable to large fines resulting from failure to comply.
The new auto-enrolment pension scheme may sound like a daunting prospect for a small business, especially if you have had limited experience with such issues, but it is vital that you educate yourself quickly to fulfil the requirements that will be bestowed upon you. By 2018, the number of workers that will be opted into the scheme will be around 11m, although the figure of those that will actually remain in the scheme has been estimated at 50 per cent, as employees are able to opt out within a month of joining.
Please note that it is imperative that employers make this decision individually and any attempts to influence their decision is illegal, and a whistle blowing initiative is in place, along with penalties.
As an employer, it is business critical that you enrol your staff onto the scheme, and failing to comply will result in your business being liable for large fines issued by The Pensions Regulator. So, get to know the facts – if you employ anyone between the age of 22 and state pension age and pay them an annual salary of more than £9,440 – they must be automatically enrolled. There are a further two categories to take into consideration.
(1) Those who have a right to join the pension scheme. You must enrol them into the scheme, but you are not required to contribute to their fund.
(2) Those who have the right to opt in. Upon the basis that they ask to join the scheme, you must enrol them and make monthly contributions.
The term that you should be making yourself aware of is “staging date”, this is when your enrolment duties come into play. To find details of the staging date that applies to your business, you will need details of your PAYE size as well as your PAYE reference, but small and micro employers have been the last to put auto-enrolment into action.
Ideally, you’ll have begun to act at least 12 months before your staging date to make sure the transition onto the scheme goes as smoothly as possible. This will be started off by providing a primary and secondary contact to The Pensions Regulator, so that the important guidance and information packs can be sent through.
How much you are required to contribute to the each fund relies on when your staging date is; before October 2017, employers are required to make a minimum contribution of one per cent, this then increases to two per cent until October 2018, when it will increase once more to three per cent.
The auto-enrolment pension scheme will see additional costs onto your monthly payroll. It is vital that businesses begin to plan their budgets now, incorporating these rising charges, to see if any cost-saving exercises can be carried out anywhere else within the business. If you decide to engage with an financial advisor, this will also be an extra fee, but can prove to be a worthwhile spend as they can advise on where it will be possible to minimise the overall spend when implementing the scheme and prevent you from being landed with a pension bill that you cannot afford.
You are required by law to communicate all aspects of the auto-enrolment scheme in writing, so that your staff can know what to expect and when to expect it. If you are not comfortable communicating the features then the DWP and The Pensions Regulator have provided templates to aid you in this part of the process as well as provide guidance on each stage.
Shaz Nawaz is the director of AA Accountants.
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