Automatic enrolment will affect every business in the UK and now is the time to prepare. Twenty years ago, employees could look forward to a government pension when they retire, now that picture could not be more different. People rarely start thinking about pensions in their twenties, but it is essential to think about saving early to ensure a comfortable life after the world of work. Businesses have a direct responsibility to support their staff in making this happen. To address this Automatic enrolment legislation has been brought in to put the responsibility on both employers and employees to contribute to a pension early on in employment.
The concept of Automatic enrolment sounds simple enough, but the complexities involved in making it a reality, and more importantly, a success mean that employers need to start looking at this now, ahead of their mandatory ‘staging date.’ These ‘staging dates’ are based upon the number of employees in a business’s PAYE scheme on 1 April 2012, meaning most small businesses will stage in 2014/15. With the scheme carrying a recommended 12 month preparation time, this means businesses will need to start preparing now.
Automatic enrolment is designed to ease employers and employees into their financial contribution gently. Initially a minimum of two per cent of qualifying earnings must be contributed, of which a minimum of one per cent must come from the employer. That rises over time to eight per cent by 2018, of which the employer must contribute a minimum of three per cent.
However, this isn’t the only consideration. The communications aspect of legislation is key, and is why businesses must prepare early to first understand the legislation themselves and then to communicate it effectively to their employees well ahead of staging. The challenge for businesses is also that they must constantly track all employee records and take the appropriate action when they become eligible for automatic enrolment, either by turning 22 or hitting the salary threshold of £9,440.
To help businesses prepare, we’ve put together some tips to bear in mind.
Find your staging date and appoint your TPR (The Pensions Regulator) contact
The larger the company, the earlier a business stages, and the majority of small businesses will stage in 2014 and 2015. The Pensions Regulator, as the name suggests, will be regulating the scheme and each business must make sure they’ve identified someone to handle all communication with this organisation well in advance.
Speak to your payroll provider
Find out how your software will deal with automatic enrolment. Many will offer an enhanced system to make compliance easier, and it is important to find out ahead of time what the system will offer.
Key questions to ask your payroll provider include:
- What are you doing for automatic enrolment?
- What additional support will you provide?
- When will your software be ready?
Have a qualifying pension scheme offering
Employers need to make sure that they have a qualifying pension scheme set-up in advance of their staging date so that they can start to enrol their jobholders. You also need to ensure they are giving you what you require and find out exactly what services they provide and how/if they will communicate with your payroll provider. Without this scheme in place you will not be able to begin enrolling your eligible employees and may miss your required staging date, with a possibility of fines for those employers who stage late.
Appoint your automatic enrolment team
Automatic enrolment requires someone to take responsibility for the scheme within your company and oversee the process. You also need to be clear who is taking responsibility for the day to day administration of the scheme. With so many elements to the scheme it’s vital to have a dedicated team in place early to ensure a smooth transition.
Develop your automatic enrolment action plan
When you have ensured you have the right contacts in place and your software will fully support your transition, you need to develop a plan, ensuring you understand the key dates ahead of staging and are aware of what you need to communicate to your employees well in advance.
Know the cost
The amount of money to be paid by a worker, and their employer, will be calculated as a percentage of their “qualifying earnings” namely, gross earnings more than £5,715 up to a maximum of £38,185. So for example, for a person who earns £19,000 a year, the percentages would be calculated from the difference between £5,715 and £19,000, which is £13,285.
Jonathan Dowden is Product Manager at Sage UK.