What Do I Need To Do About Auto-Enrolment?

Did you know that by the end of 2017, shops and other small business employing less than 50 people must sign all their employees up to a company pension scheme – a process known as “auto-enrolment”.

Here at Virgate Accounts, we are constantly asked about Auto-Enrolment and what it means to small businesses.  In case you haven’t already got a company pension scheme, we thought we would share some of the frequently asked questions and the answers we shared:

Q:  Why was Auto Enrolment introduced?

A:  People are living longer and the government wants to offset some of the financial burden it carries by ensuring people develop a pattern of saving for their retirement, as early as possible. By enforcing auto-enrolment, both the employee and employer contribute to the employee’s pension pot.

Q:  Does my workforce have to agree to this?

A:  Your employees are automatically enrolled on to your company pension scheme, but after a month they can choose to opt out.

Q:  Does auto-enrolment affect all my staff?

A:  The legislation mandates that auto-enrolment must be implemented for all employees:

• Who earn over £10,000 per annum
• Aged between 22 years and the state pension age (this is changing so you need to stay up to date on it)
• Within six weeks of their start date (though the Pensions Regulator may negotiate on this to a maximum window of three months)

If you have staff earning between £6,136 and £10,000, they must be given the opportunity to opt in to your company pension. If they do, then as an employer you need to contribute as you would with higher-earning employees.

Anyone earning less than £6,136 can opt in, but you are not obliged to make contributions.

Q:  How will Auto-Enrolment affect my shop/business?

A: It would be best to get help from an accountant who understands your sector and the challenges you face, so you can set up and run a company pension scheme that is compliant but also easy for you to manage.

There will be set up costs and payroll implications. You are obliged to pay a contribution at least 3% of your employee’s salary each time they are paid. Employees have to contribute at least 5% too, unless the employer chooses to pay this for them.

It’s important to note that you must automatically re-enrol your employees in your pension scheme every three years.

Q:  Are there any exemptions?

A: All shops and other small ventures must comply by the end of 2017. The only exemption is micro-businesses with directors, but no employees. Even then, if any director has a contract of employment, they too must be auto-enrolled into a company pension.

Q:  What’s the deadline for Auto-Enrolment for my business?

A:  The Pensions Regulator will write to you to explain auto-enrolment and provide you with a timeframe to comply – your “staging date”. There is usually a six to eight month notice period for your staging date.

You can apply to postpone your staging date if you have compelling reasons.

If you haven’t received your letter yet, you can find out your staging date by visiting this website: http://www.thepensionsregulator.gov.uk/employers/staging-date.aspx

Q:  So how do I set up a company pension scheme?

A: Your accountant can help you with this and can talk you through the options.

Some companies can choose to enter into contractual arrangements with either an insurance company or a pension fund. This involves additional fees for the set-up and running of the scheme, but delegates out a lot of the admin.

Other businesses decide to create a trust-based pension scheme, which is one wholly managed by your own financial team, including collecting contributions and making investments. Not every business has the internal resources needed for this, particularly smaller shops and restaurants.

The third option is particularly popular with small companies in the retail sector – as it’s a compromise between the two arrangements detailed above. This is called a Master Trust scheme. A pension provider would manage your pension contract alongside a group of other SME schemes, leading to economies of scale on the administration costs.

There are a variety of Master Trust products around – including a Government endorsed one called NEST. You need to find the one that provides the services you need, within a cost structure you feel comfortable with, as they do vary.

There are two main types of pension scheme you can create using the above systems:

Defined benefit pensions – these are relatively expensive to run and provide your employees with a pay-out based on their years of service with your company, and their salary.

Defined contribution pensions – these involve both the employer and employee making contributions into the retirement “pot”, and is the common approach.

Q:  Can you help me to sort this all out?

Of course.  Here at Virgate Accounts we can guide you through the process step by step and help you to introduce it with minimum disruption to your business.

Why not find out more by booking a free, no-obligation consultation today and discover how we can make auto-enrolment stress and hassle free for you and your business.