You also need to think about how you plan to communicate with your workers. Texts, emails, online articles, posters or letters are all ways suggested by the Pensions Regulator. Of course, not all of these methods may be available.. If your workers can’t be reached through email or work intranet, you need to make sure you have an alternative method to contact them by.
Furthermore, employers should be aware that employees can opt out of the scheme at anytime they want. Some will think that they can’t afford it, and others will want to continue with or make their own arrangements. The upshot is that SMEs must have clear communication with the worker and must also be sure to keep diligent records so that they can prove they are complying with HMRC requirements.
However, employers should take caution, influencing an employee’s decision to opt out of auto enrolment is against the law. For example, making an employee’s contract conditional on them not joining the employer’s auto enrolment scheme is strictly forbidden.
Minimum employer contributions
PAE law has set a minimum level for employer contributions. This is set at one per cent of “qualifying band earnings” until all employers are included in 2017 when it will increase to two per cent and then to three per cent from October 2018. “Qualifying band earnings” means all earnings between £5,668 and £41,450 for the 2013/14 tax year, including salary, commission, bonuses and overtime.
These required contributions amount to a pay rise for employees who are auto-enrolled followed by more pay rises for them in 2017 and 2018. You need to be considering how to make provision for these extra costs. This could be done via your salary review process and/or by allowing employees to exchange part of their salary for these pension contributions.
The Government has recently launched a £3.5m advertising campaign featuring Karren Brady from The Apprentice, and Theo Paphitus from Dragon’s Den. However, although the advert benefits the employee, it is limited in its appeal to employers. All but the smallest employers have staging dates within the next 18 months yet recent research shows that 56 per cent of these employers either do not realise auto-enrolment applies to them or do not know about it at all.
Therefore, employers should be challenging Government to supply better communication to help them gain a full understanding of the scheme, how to implement it, the legal requirements and the impact it will have across their business. While it is the employer’s responsibility to get to grips with auto enrolment, they should expect better help and information to be made readily available by Government.
Pension auto enrolment is not going to be plain sailing for SMEs. How well it addresses the pension crisis will only become clear some years after implementation. A further issue, key to PAE’s success or failure, will be the extent to which workers exercise their rights to opt out of the scheme. A study by Aviva earlier this year found that more than a third of workers (37 per cent) will opt out after being automatically enrolled. But the fact is, for many businesses, it is already here, and for those who have yet to launch a scheme, your day will come soon. Careful preparation is essential and will help ensure a pain free implementation.
Chris Blundell is a tax partner at accountancy firm MHA MacIntyre Hudson.
Share this story