The countdown
is well and truly for pensions
auto-enrolment with the first stage
taking place this October for large
businesses with more than 10,000
PAYE employees.With the
government having recently delayed
even further the staged process for
other businesses to roll out the new
regime, it may seem like a long time
before the proposed changes will
affect smaller companies. But
employers should not be complacent,
whatever the size of the payroll. At
the very least businesses need to
understand the basics in good time.
What is auto-enrolment and how
will it affect my business?
Put simply, the government has
concluded that not enough people
have been saving for their
retirement. A policy of
auto-enrolment has therefore been
introduced whereby all employers
will be under a legal duty to enrol
all eligible employees into a
qualifying pension scheme. Further,
employers will also have to make
minimum contributions to these
schemes, eventually of up to 3% of
an employees’ earnings.
Eligible employees will be those
between the ages of 22 and state
pension age who are earning over the
set minimum (being £8,105 for the
year 2012/13, corresponding with the
income tax personal allowance
level). However, those who are not
eligible (e.g. by being under the
qualifying age of 22) may choose to
opt in by giving their employer
relevant notice.
Similarly, employees who are
automatically enrolled under the new
scheme will have the right to
opt-out of the scheme within
prescribed time-limits.
At present, there is no
obligation on an employer to
contribute to an employee’s pension.
Instead, the only obligation is to
provide employees with access to a
stakeholder pension scheme. Even
that obligation does not capture
those businesses with less than 5
employees. The changes therefore
represent a significant change to
workplace pensions for employers.
When will my business be
affected?
The changes will be implemented
in stages depending on the size of
the business with larger employers
going first by the end of this year,
down to the smallest companies with
less than 30 employees at the end of
the process.
The government have recently
revised the staging deadlines in the
hope of reducing the burden of
implementing the reforms on small
businesses in light of the ongoing
difficult economic conditions.
The implementation deadlines for
small businesses are currently as
follows:
- 50 – 249 employees:
implementation between 1 April
2014 and 1 April 2015
- 30 – 49 employees:
implementation between 1 August
2015 and 1 October 2015
- Fewer than 30 employees:
implementation between 1 January
2016 and 1 April 2017
So should I just sit tight
until the deadline?
The auto-enrolment scheme
represents a significant change in
workplace pensions. It would
therefore be prudent for all
employers, large or small, to
consider their strategy sooner
rather than later to ease the
inevitable administrative and
financial burden that these changes
will bring. This would be
particularly true for smaller
businesses which may not have the
same resources to draw on as larger
companies.
The necessity to take action to
ensure that new pensions
requirements are met is further
cemented when you consider that a
failure to comply may lead to
compliance notices being issued,
fines of up to £10,000 (for the
largest employers) and even criminal
penalties in some circumstances.
In terms of the deadlines set,
employers can choose to implement
the changes at an earlier staging
date than the one allocated to them
if they wish to do so, but may not
choose one later than the one
specified. Therefore, if your
company is prepared to make the
changes as soon as possible then
there is nothing to stop you from
doing so before the staging date
that your company has been
allocated.
From a practical perspective, you
should give thought early on as to
how the business intends to manage
the administrative task of ensuring
all employees are enrolled in a
suitable and compliant workplace
pension, as well as subsequently
dealing with those who may choose to
opt-out. If you are planning any
unrelated changes to the payroll
system over the next few months, you
should consider building in
auto-enrolment procedures at the
same time to allow plenty of time
for new systems to be tried and
tested.
Although it may not be possible
to accurately predict the financial
status of your business three years
down the line, it is a certainty
that these changes are going to come
at a cost to all businesses, from
the costs of the mandatory employer
contributions, to the incidental
costs of implementing the relevant
administrative processes. It is
therefore never too early to start
considering how to reconcile these
requirements with the business
budget.
Note: This article is intended
to give readers a brief overview of
the proposed pension reforms. It is
not intended to give comprehensive
or specialist advice to employers.
The UK pensions regime is complex
and subject to ongoing changes.
Therefore before action is taken,
detailed guidance and advice should
always be sought from relevant
pensions practitioners. |