Posted on: 22 December 2015
In the next two years, small businesses in the UK will take on the task of launching a workplace pension for their employees under government legislation. Throughout 2016 the scheme will see the focus move to small businesses with thirty employees or less.
If you’re an employer in the UK and you haven’t yet started preparations for an auto enrolment pension scheme, then it’s time to get the ball rolling.
We’ve put together this guide and a Pension Project Plan to help you plan for the setup of your company’s pension scheme.
What is automatic enrolment?
All employers will be obliged to automatically enrol employees into a workplace pension scheme as the result of a new law which was first introduced for larger businesses in 2012.
The government has made changes to how workplace pensions operate in order to help more people save for retirement.
Employers have to contribute to the pension pot too, with the Government providing funding through tax relief.
When you will be affected
The deadline by which you must fulfil your responsibilities under auto enrolment is known as your staging date. You can find your date by entering your PAYE reference on the interactive tool on the Pensions Regulator website.
Your staging date marks the start of a five month period in which you need to set up your employees’ pension scheme and inform The Pensions Regulators that you’ve done this.
Firms with fewer than 30 employees will have to comply between now and 1st April 2017. The first staging dates for small businesses of 30 - 49 employees started 1st August 2015.
By October 2017 the workplace pension scheme will apply to all employers, even those that only employ one person.
Who you need to enrol
Employees fit into three categories; eligible, entitled and non-eligible.
You must enrol eligible employees who are:
- Between the age of 22 and the state pension age
- Working in the UK
- Earning over £10,000 a year
- Aren’t already in a qualifying pension
Non-eligible employees do not have to be automatically enrolled but may ask to be and if they do, you must enrol them and pay minimum contributions. These are UK employees who are:
- aged between 16 and 22 or between state pension age and 74 and earn more than £10,000 a year OR
- aged between 16 and 74 and earn at least £5,824 but less than £10,000
Entitled employees can also ask to join the scheme, although you do not have to pay contributions for this group. Entitled employees are those aged at least 16 but under 75 who earn less than £5,824.
You will have to pay a minimum employer contribution for all staff you put into this scheme and contributions vary from business to business. You can use the employer contribution section of the pension regulator website to get an idea of how much you need to contribute per employee.
How to handle employee opt outs
All employees have the right to opt out of the pension scheme and can only do this once they have been enrolled.
To opt out, employees have one calendar month from the start of enrolment to hand in an ‘opt out notice’. As an employer, you must pay back any monies taken from their pay and the pension scheme will refund any contributions that you’ve made on their behalf.
If employees opt out after the initial month they will ‘cease membership’ but may not be able to get their money back depending on the pension scheme rules. All employees that opt out of the scheme must be re-enrolled every three years.
It is illegal to try to force any employees to opt out or to influence their decisions.
Choosing the right pension scheme
Picking the right pension scheme for your employees is an important decision. If you currently have a pension scheme, you should check if you can use it on an automatic enrolment basis for other members.
There are a few things you need to consider when searching for a suitable pension provider for your employees:
Does the scheme meet your requirements?
You should make sure that the pension scheme you select meets the minimum requirements to be used for automatic enrolment. Some schemes only allow a certain number of staff or staff that earn over a certain amount so make sure you choose a qualifying scheme.
Make sure you also understand all of the scheme rules, guidelines and the support that the pension scheme can offer you and your employees.
Does your payroll software support your scheme?
If you use payroll software, you will need to ask your software provider whether it will work with the pension scheme that you would like to use. This can take up to 6 months, so be prepared.
Have you informed your staff?
You need to inform your employees about the auto enrolment pension and all information surrounding it.
What happens if I miss my date?
As an employer, it’s your responsibility to enrol your employees into a pension scheme by law. If you miss your date and five month setup period, The Pensions Regulators will begin to take action from letters and phone calls through to court action.
If you’ve missed your date then you should contact the Pensions Regulators immediately.
The information and tools contained in this guide are of a general informational nature and should not be relied upon as being suitable for any specific set of circumstances. We have used reasonable endeavours to ensure the accuracy and completeness of the contents but the information and tools do not constitute professional advice and must not be relied upon as such. To the extent permitted by law, we do not accept responsibility for any loss which may arise from reliance on the information or tools in our Insight Hub.