Last year saw the biggest shake up in retirement provision in the last 100 years. Starting with the largest employers and rolling out over the next five years, some 11 million people working for around 1.2 million employers will be automatically enrolled into pensions.
The new laws mean that practically every employer must automatically enrol their eligible workers into a qualifying workplace pension scheme and make contributions.
What does automatic enrolment mean for you?
The largest companies in the UK have already started enrolling their staff and NEST itself is now working with over 400 household-name employers from a wide range of sectors. But the majority of employers are yet to be affected.
During summer 2014 alone, 25,000 employers will reach their “staging date”. This could be you.
What do you need to do?
A good starting point is to understand your “staging date” and work back from that.
Your staging date is the date by which you need to comply with the duties and is based on the number of employees on your PAYE scheme. You can find this out from the Pensions Regulator’s website, along with other guidance on the rules.
Who do I need to enrol?
You will need to enrol all eligible workers who are not already in a qualifying scheme. An eligible worker is:
- Aged between 22 and the State Pension Age
- Working in UK
- Earning above £9,440
Assessing your workforce is one of the first steps you’ll need to take. You will also need to consider what scheme or schemes you will use to meet the automatic enrolment requirements.
Our advice is not to assume that your existing pension provider, if you have one, will be able to help all of your workers. Start a conversation with them early on to see what they can do.
If that all sounds a bit daunting don’t despair! There is lots of advice and guidance available to you.
You can find our more at the Pension Regulator’s website and NEST has a suite of tools and guides which can help you navigate your way through what you need to do.
How much do I have to contribute?
Minimum contributions will start at 2 per cent of qualifying earnings from 2012, of which the employer must contribute 1 per cent; then they’ll rise gradually over the next few years to a total minimum contribution of 8 per cent of which employers will have to put in a minimum contribution of 3 per cent of those earnings.
What do I need to tell my workers?
Your workers will need to be told about the changes in writing, either by paper or email. The information you need to tell your workers is set out in legislation and includes details of the pension scheme you use and the contributions for your workers, as well as where your workers can go for more information. NEST has templates you can use, both to meet your legal requirements and materials to help your workers understand how the changes will affect them.
Pensions are often seen as confusing and research suggests many workers lack confidence about workplace pensions, which may mean more questions for you as an employer. If you communicate ahead of the changes, in clear language, you’re likely to reduce the number of queries from your workers.
How long does it take to prepare?
If your staging date is over a year away it can be tempting to push it to the bottom of your “to do” list. However, many employers are underestimating how long it can take to get the implementation of automatic enrolment right.
It can take between six and 18 months to get ready, depending on the size and complexity of your business. As well as assessing your workforce and choosing a provider, you will want to decide on your contribution levels for different groups of workers and should ensure your payroll systems (if you have them) can manage pension payments every pay period. Whatever their size, the vast majority of employers will face similar decisions and activities.
Graham Vidler is director of communications and engagement at NEST.