What does auto enrolment mean for your business?
Although we are all living longer, not everyone is saving enough to fund the increasing number of years spent in retirement. Therefore, the law has changed to encourage more employees, particularly those on lower incomes, to build a pension by staying in a scheme and continuing to contribute to it.
Every UK employer now has to enrol all staff meeting certain criteria on to a workplace pension scheme. Workers don’t choose this scheme, their employer does, meaning the onus is on employees to actively opt out of the scheme, should they decide to leave, rather than proactively selecting a pension scheme themselves.
This is called auto enrolment, and it is being introduced nationwide over a six-year period, having started with the UK’s biggest employers in April 2012.
As an employer, you are obliged to pay a minimum contribution for every included employee of 1% of salary, a figure which rises to 3% by 2018.
The new arrangements apply to everyone on your payroll (including temporary staff and agency employees paid directly) who:
- Is aged between 22 and the state pension age
- Is employed in the UK
- Has an annual salary of at least £10,000.
Certain other employees, depending on their age and income, retain the right to inclusion in your auto enrolment pension scheme, and if they are ask you to do this, you must comply with their wishes.
There is yet another group of staff who can ask to join a scheme, and who also have to be included, but you are not under any obligation to provide an employer contribution for these members of your team. More details on understanding who in your workforce falls into which category can be found on the website of the Pensions Regulator.
Duties for automatic enrolment begin from your ‘staging date’, and when this falls depends on the size of your PAYE scheme. You are entitled to delay the start of auto enrolment for up to three months from this date, should you wish to do so. Then, once this period has expired, all relevant staff members need to be enrolled on a pension scheme. You can find out your staging date, if you don’t already know it, from the Pension Regulator’s website.
Once you know this date, you should write to everyone individually and let them know how automatic enrolment affects them.
Additionally, there is a requirement to report to the Pensions Regulator about your compliance with legislation on auto enrolment. You’ll need the right software to handle automatic enrolment, usually your payroll system.
Make sure your organisation is properly prepared, since many smaller employers, in particular, may not realise that the rules apply to them. Penalties for non-compliance include notices and fines, served by the Pensions Regulator. The body said this autumn that it has already penalised the first employers a fixed sum of £400 for breaking the law in not meeting their duties on pension schemes and automatic enrolment.
Don’t join them. Follow the regulator’s advice and, if you have not already done so, start planning ahead for auto enrolment months before your staging date.
At FourM, our payroll team has a wealth of experience with all sizes of organisation and can help you meet your duties concerning automatic enrolment. Ask us today for more information.