The underlying aim – to defuse a national savings time-bomb by ensuring that Britons are financially prepared for retirement – is both laudable and sensible.
Most businesses should be able to absorb the cost of employer contributions with relative comfort, at least until statutory contributions (see below) start to increase in a few years’ time. However, the legislation has created an administrative headache for employers – especially for small and medium-sized businesses that often lack the in-house expertise, resources and sophisticated systems of larger organisations.
The most challenging aspect of auto-enrolment for many employers is the planning. A common mistake is to leave preparations to the last minute, only to discover that you have no chance of doing all the necessary work in time for your staging date.
Breaking the rules – such as encouraging employees to opt out of a scheme or falling short of record-keeping requirements – can result in a fine of up to £50,000. It’s therefore highly advisable that you take the necessary steps to ensure your business is auto-enrolment compliant. This is, of course, easier said than done.
Here are my top three tips for staying on the right side of the auto-enrolment rules:
It’s vital that you start planning and preparing for auto-enrolment at least a year in advance of your staging date. Doing so will ensure that, when the time comes, your scheme can go live without any IT or payroll glitches.
2. Act now to secure your preferred provider
Enlisting the services of a reputable, knowledgeable pension scheme provider will greatly reduce the risk of your organisation inadvertently encountering problems or breaching the rules. Indeed, the best providers will assist with everything from HR and payroll integration to employee communication.
However, the growing threat of so-called capacity crunch is a cause for concern. Pension industry experts have been warning since autumn 2013 that the explosion in the number of businesses approaching their staging date could eventually lead to providers shutting their doors due to their inability to handle the sheer volume of complex work coming their way.
With 26,915 employers due to complete auto-enrolment registration between May and December 2014 – compared to just 11,834 between October 2012 and April 2014 – a business that has not yet appointed a provider could well be turned away by their preferred partner.
3. Know your responsibilities
Regardless of which pension scheme provider you eventually end up turning to, it’s vital that you understand your obligations as an employer – and are aware of what could constitute a breach.
Figures released by The Pensions Regulator (TPR) recently suggest that some businesses have work to do in this area. For example, within the recruitment and staffing sector alone, 25 companies have been found to be in breach of the legislation.
Here is a whistle-stop guide to the finer points of auto-enrolment for employers:
- Employees who are aged 22 to state pension age, work in the UK and earn more than £10,000 a year must be automatically enrolled into your auto-enrolment scheme;
- The employees will have the chance to opt out or leave the scheme if they wish to, but you must not coerce or encourage them to do so as this constitutes a breach;
- A minimum percentage of an employee’s ‘qualifying earnings’ must be paid into the scheme, including a contribution from you, the employer;
- The minimum employer contribution is currently set at one per cent of the employee’s qualifying earnings, but this is due to rise to two per cent in 2017 and three per cent in 2018; and
- The legislation allows employers to postpone or ‘defer’ the automatic enrolment of employees into their scheme by up to three months
Derek Kelly is managing director at SME support provider ClearSky Business.
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