Managing Your Cash Flow

Is your business ready for auto-enrolment?

2 min read

13 November 2013

The introduction of pensions auto-enrolment will mean that every employer must automatically enrol their workers into a workplace pension scheme if they are aged between 22 and the state pension age, provided that they also earn more than £9,440 a year and they work in the UK.

Around 38,000 British businesses will need to auto-enrol their employees in company pensions next year. By 2018 it’s expected that 11m more workers not currently on workplace pensions will automatically be placed onto schemes.

Concerns have already been expressed about the burden this will place on small and medium sized enterprises. 

Nearly a third of SMEs admit that they are going to ignore the forthcoming auto enrolment legislation, according to a survey of more than 300 small businesses on behalf of employee benefits adviser Secondsight. 

The survey also revealed that two thirds of SMEs have little or no knowledge about what the legislation involves.

This is particularly worrying given that those who miss the deadline or who offer pensions that do not comply with regulations, can be hit with fines of up to £500 per day.

Essentially there are three main schemes available to employers. Trust-based schemes are managed by a trust appointed by the employer. Contract-based schemes mean that the employer appoints an external pensions provider.

A master-trust is a single trust that services a number of employers. For smaller firms trust-based schemes, which involve the employer recruiting trustees, might be too time consuming and expensive. Contracting out provision or joining a master-trust could make better sense.

“The current pensions marketplace offers employers more than enough choice when it comes to providing employees with a suitable pension arrangement, for example self-administered trust-based schemes, contract-based schemes and master-trusts,” says Phil Farrell, Principal Consultant at Quantum Advisory, an actuarial and benefits consultancy firm. 

“The issue here is not lack of choice, but making the correct choice, and it’s here where a good professional adviser will earn their corn. They will consider a myriad of issues, most of which will not, unreasonably, be unknown to employers, ensuring that the most suitable arrangement is selected.”

Further advice is available from The Pensions Regulator.

Getting expert advice from a professional might involve an additional cost initially, but over the longer term it could prove to be a wise investment not just for employees but for employers too.

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