From March 1st this year, businesses with fewer than 58 employees will start having to comply with the new auto-enrolment pensions legislation and by June 1st, those with fewer than 30 staff will be captured by the legislation.
In total more than 46,000 companies will have to begin providing their employees with a workplace pension this year with, while next year, 512,000 will be affected.
What is auto-enrolment?
Auto-enrolment is the UK’s new workplace pensions initiative. Designed to get a larger proportion of the population saving for retirement, the policy makes it a legal requirement for all employers to automatically enrol any employee who meets these requirements into a workplace pension and makes contributions to that pension: is between the age of 22 and State Pension Age (65) and earns more than £10,000 a year.
How much will it cost?
The minimum employer contributions are 1 per cent of each employees’ qualifying earnings, increasing to 3 per cent over time. Employees will also contribute with a minimum of 1 per cent of their qualifying earnings, increasing to 5 per cent over time.
“Approaching auto-enrolment can feel daunting and there are a lot of things to consider, particularly for firms that have never set up a pension scheme before. But a little planning can go a long way and taking a thorough approach will certainly pay dividends,” says Morten Nilsson, CEO of NOW: Pensions.
Here are Nilsson’s top five tips for SMEs:
1. A little planning goes a long way
For small businesses faced with the prospect of tackling auto-enrolment, planning ahead shouldn’t be underestimated. The Pensions Regulator recommends firms begin their planning 18 months in advance of their staging date but it seems their pleas are largely falling on deaf ears.
Research NOW: Pensions conducted with 450 small and medium sized companies revealed that 44 per cent haven’t given any thought to how they’ll go about finding a provider for auto enrolment while over a fifth intend to rely on their existing provider.
Leaving auto-enrolment to the last minute will inevitably result in more limited provider choice, increased administrative pressure and unnecessary stress. The simple truth is the longer businesses allow themselves to implement the changes, the easier the process will be.
2. Don’t make any assumptions
Companies planning to rely on their existing provider for auto-enrolment should speak to them early on to ensure that the scheme qualifies for auto-enrolment and to confirm that they are willing to extend it to all employees on the same terms.
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