Auto-enrolment is nearly upon us, but SMEs still have time to prepare

Over the last few months hundreds of thousands of small businesses have received a letter from the Pensions Regulator about auto enrolment. This represents the biggest change to pensions for a generation. Around 45,000 employers will need to enrol workers into a workplace pension this year. 

According to a recent survey by NEST, a national trust-based pension scheme, although 91 per cent of small employers and 85 per cent of micro businesses know about the changes just 18 per cent of small and micro employers feel they completely understand what it mean for their business.

NEST was set up by the government as part of the automatic enrolment workplace pension reforms. It’s run on a not-for-profit basis by an independent Trustee, NEST Corporation, and has a legal obligation to be open to any employer to use for automatic enrolment.

Total assets under management are over £364mIt currently has around 1.9m members and there are around 11,000 employers using NEST, plus over 850 self-employed members. Total assets under management are over £364m.

The organisation’s research also suggests that smaller employers will increasingly turn to accountants for help and advice in the coming year, but, it warns, it’s not currently clear whether accountants are as prepared as they may want to be for an increase in demand.

However, according to experts there are a few simple things that SMEs and small businesses can do. “The first thing you should look at is when you need to auto enrol your workers,” said a NEST spokesman. “This information will be in your letter from the Pensions Regulator, or you can visit their website and find out. Once you know this you can plan out your approach to enrolling your workers.”

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SMEs also need to determine who within their organisations needs to be auto-enrolled. This is essentially all eligible workers who are not already in a qualifying pensions scheme. These will probably be anyone who is aged between 22 and the state pension age, who is working in the UK and is earning above £10,000 pa.

“It is important to know that other types of workers can ask to be enrolled and you may have responsibility for them too,” added NEST.

Rates and frequency should be considered because pensions are closely linked to the company payroll. This is where SME owners can check who needs to be enrolled and how much their contributions will be. It’s also where contributions are processed. So looking at the payroll processes is a good starting place for auto enrolment. 

According to NEST research, 64 per cent of employers pay their workers monthly and 34 per cent pay their workers weekly. As auto enrolment requires employers to check the eligibility of their workers every pay period and make adjustments to their contributions accordingly, an employer who pays their workers on different frequencies and at different intervals may have to do this several times a month. Some small and medium-sized businesses may decide that aligning pay periods streamlines the process for them.   

NEST findings also show that most workers – around three quarters – support auto-enrolment. This suggests that they may be already be waiting to find out from their employers what auto-enrolment means for them. Giving them this information forms part of an SME owner’s responsibility as an employer. Owners will need to do this in writing, either by email or on paper.  

There’s a lot that employers will need to explain, but NEST has created ready-to-use templates. These show employers what they need to do to tell their workers how the changes will affect them. “By communicating clearly you may also limit the number of questions you are asked by your workers,” emphasised a NEST spokesman.

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