New Pensions Law – Beware
From 1st March this year, businesses with fewer than 58 employees will start having to comply with the new pension law (auto enrolment pensions legislation) and by 1 June, those with fewer than 30 staff will be captured by the legislation.
In total more than 46,000 companies will have to begin providing their employees with a workplace pension this year with, while next year, 512,000 will be affected.
What is auto enrolment?
Auto enrolment is the UK’s new workplace pensions initiative. Designed to get a larger proportion of the population saving for retirement, the policy makes it a legal requirement for all employers to automatically enrol any employee who meets the below requirements into a workplace pension and makes contributions to that pension:
- is between the age of 22 and State Pension Age (65)
- earns more than £10,000 a year*
How much will it cost?
The minimum employer contributions are 1% of each employees’ qualifying earnings, increasing to 3% over time. Employees will also contribute with a minimum of 1% of their qualifying earnings, increasing to 5% over time.
Top five tips
For small businesses faced with the prospect of tackling auto enrolment, planning ahead shouldn’t be underestimated. The Pensions Regulator recommends firms begin their planning 18 months in advance of their staging date but it seems their pleas are largely falling on deaf ears.
Research NOW: Pensions conducted with 450 small and medium sized companies** revealed that 44% haven’t given any thought to how they’ll go about finding a provider for auto enrolment while over a fifth intend to rely on their existing provider.
Leaving auto enrolment to the last minute will inevitably result in more limited provider choice, increased administrative pressure and unnecessary stress. The simple truth is the longer businesses allow themselves to implement the changes, the easier the process will be.
2. Don’t make any assumptions
Companies planning to rely on their existing provider for auto enrolment should speak to them early on to ensure that the scheme qualifies for auto enrolment and to confirm that they are willing to extend it to all employees on the same terms.
3. Seek help
For small firms introducing a workplace pension for the first time, it would be worth seeking guidance from an adviser who can help identify a value for money scheme that is suited to the workforce.
4. Cleanse your data
One of the biggest stumbling blocks in the auto enrolment process is inaccurate or incomplete payroll data. Taking the time to ensure that payroll data is complete and entirely up to date, will help avoid problems during the implementation process and beyond. Where possible, companies should try and obtain e-mail addresses for all staff as issuing communications about auto enrolment via email is often cheaper and more efficient than post.
5. Give thought to contributing more than the minimum
Nearly one in five small and medium sized companies we surveyed say they plan to contribute more than the legislative minimum when they introduce auto enrolment.
More than half of those planning to pay more in believe doing so will help with the recruitment and retention of employees. This approach makes sense as high levels of staff turnover can act as a hidden drain on an employer’s profitability.
Auto enrolment is a legal obligation and at the end of January, The Pensions Regulator issued 166 businesses with fixed penalties of £400 for non-compliance.
For more information on the new pensions law, email: firstname.lastname@example.org