Over the last decade, participation in pension schemes has been steadily declining. This has prompted the Government to introduce Pension Auto-Enrolment PAE) in an effort to overcome this. The aim is to make it easier for people to save for retirement by compelling businesses by law to automatically enrol eligible employees into a qualifying workplace pension scheme.
Introduced in October 2012, Pension Auto-Enrolment saw larger employers enrolling first with smaller businesses subject to staged implementation. The date a business must auto enrol its employees is determined by the size of its workforce as measured by the total number of people on its largest PAYE scheme (based on information held by the HMRC on 1 April 2012).
The larger a business’s workforce, the earlier s the date by which it must auto-enrol its employees into a workplace pension. By April 2017,all current employers will have had to auto-enrol their employees. Employers with more than 2,000 employees should have auto-enrolled their employees by now. Businesses with fewer than 30 employees will not be required to launch auto enrolment until June 2015 at the earliest.
However, despite the later staging dates, SMEs (usually defined as businesses having 250 or fewer employees) should not be complacent. All organisations, including SMEs,with between 30 and 2,000 employees will have to auto-enrol their workers into a workplace pension scheme via PAE in the next 24 months. The impact of this on small to medium sized businesses will likely be far greater than anticipated.
This is primarily because many smaller employers have not previously needed to engage very much with pension plans and subsequently have little experience of dealing with and managing the required administration, adherence to legislation, and necessary communication with employees. Therefore, they are likely to find it more difficult to come to terms with the extra responsibility when the scheme becomes mandatory for their business.
It is vitally important for SME employers to start preparing now to avoid penalties for non compliance and ensure a smooth transition and less disruption when the time comes to enrol staff. Key steps include:
- Familiarise yourself with your staging date;
- Seek expert advice to determine what your PAE requirements are based on the HMRC definitions;
- Ensure you have all the necessary details to effectively communicate with employees;
- Be certain that the pension plan or scheme you have in place is the right one for your business and employee needs; and
- Understand your minimum employer contribution
Know your staging date
The first thing employers should be doing right now is familiarising themselves with their company staging date (the date from which they must enrol). This will leave enough time to develop a comprehensive plan that accounts for any pitfalls and will ensure effective and smooth implementation. The Pensions Regulator (the Government body responsible for ensuring employers comply with the auto-enrolment legislation) recommends employers start planning for auto-enrolment 18 months before their staging date.
Ask the experts
Get advice now ahead of your staging date to ensure you know exactly how the process works, take into account any related costs and develop a strategy that will help you avoid any possible fines. Employers who don’t comply with auto enrolment face potentially serious charges, starting with a £400 fixed penalty for those who ignore their initial staging date followed by uncapped penalties for further non-compliance of up to £2,500 a day if you have fewer than 250 employees and up to £10,000 a day if you have 250 or more employees.
Effectively communicate with your employees
Employers are obliged to communicate the pension scheme changes to their employees. By law, all employers are required to write to their staff within one month of their staging date explaining what auto enrolment is and what it means for them, so make sure you are ready to do so by this required date.
With this in mind, the following steps should be considered
- You need to tell your employees whether they will be auto enrolled – only those aged between 22 and State Pension Age and earning over ?9,440 a year have to be auto-enrolled;
- You must tell your employees when they will be auto enrolled know your company staging date prior to making any announcement;
- You must tell you employees how they can join – workers earning less than?9,440,or those who are aged 21 or under, or those between State Pension Age and 74can still opt in to auto enrolment even though they aren?t required to do so; and
- You must tell your employees how much they will be contributing.