AUTO-ENROLMENT UPDATE

It is nearly two years since I wrote about this last and during that period a lot of employers have reached their ‘staging date’ for pension auto-enrolment purposes (the date by which employers are required to have a qualifying pension scheme in place for their employees).

However, since the staging dates are specified by the Pensions Regulator and spread across a number of years, there are still many more employers who have not yet reached their staging date. The larger employers had earlier staging dates so smaller, often familyrun businesses, may well be approaching their staging dates shortly so action needs to be taken sooner rather than later if you have not already done so.

It is useful to have a summary knowledge of the rules regarding auto-enrolment before your staging date so that you can plan accordingly and I have detailed below some practicalities of dealing with these:

  • If you employ one or more individuals you will need to give careful consideration to the setting up of a pension scheme which meets the new rules. It is very unlikely that you will be able to avoid this and the penalties for ignoring the new law are severe.
  • There are exemptions for limited companies with only one director and no other employees. The position with regard to limited companies with more than one director (or one director and company secretary for example) is not quite as straightforward but steps may be able to be taken so that such companies do not have to have a qualifying pension scheme setup (which would obviously have to be with the agreement of all the directors/secretary)
  • Even if you currently have a pension scheme for your employees, it may not meet the requirements, e.g. the annual charges made by the insurance company may be too high or the level of contributions may be too low. Check with your pensions advisor now.
  • Theoretically you can set up a suitable scheme with an insurance company, probably through an independent financial advisor (IFA) as an alternative to the fall-back position which is the “National Employment Savings Trust” (NEST), a government sponsored arrangement.
  • In practice insurance companies are generally reluctant to deal with schemes for small numbers of employees or schemes involving large numbers of lowly paid employees, particularly where staff turnover is high.
  • Similarly, in practice, IFAs will need to make charges for assisting you with your obligations and those charges could become disproportionate.
  • Even assuming the nature of your workforce meets the minimum criteria of an insurance company, do not assume that they will still be interested if you leave contacting them until the last minute (particularly as by now, they may well already be dealing with a number of larger employers so may not be keen to take on smaller employers where there is potentially less in it for them).
  • There is a significant amount of administration to deal with in relation to the implementation of auto-enrolment. Depending upon your aptitude for dealing with this kind of administration and the time available, you may prefer to instruct an IFA to help you. Obviously, your decision will be swayed by the cost and this would need to be ascertained.
  • Payroll software may be an issue in relation to autoenrolment and you will need to check whether that is likely to be a problem. One or two “dry runs” in advance of the new arrangement becoming operative would be wise.
  • The minimum amounts that employers must contribute to a scheme for their ‘eligible’ employees will be increasing over the coming years so the additional cost burden for your business will need to be considered.

If you don’t know it already, make sure you check your business’s staging date – you can go to www.thepensionsregulator.gov.uk/employers/staging-date in order to ascertain the date which applies to you by entering your PAYE reference number.

We have produced our own factsheet covering auto-enrolment in more detail and if you would like a copy of this then please contact any of our offices or by email to mail@pearsonmay.co.uk. The factsheet is also available on our website under ‘News – Pearson May Publications’. We provide an outsourcing service for payroll and auto-enrolment compliance and will be pleased to give you a costing if it is of interest. The above is for general guidance only and no action should be taken without obtaining specific advice.