Pensions autoenrolment: what you need to know
Many small businesses have now received a communication from their payroll provider, financial advisor or from the pensions regulator himself about the so-called "auto enrolment" pensions legislation. In this article we'll give you a brief overview of what it means, and how to cope with it. If you're planning on managing this whole process yourself, you'll need to be familiar with the Pensions Regulator's guidance for employers.
What is it?
Auto enrolment legislation has been designed to encourage a retirement savings culture in the UK. This new legislation requires all employers to automatically enrol some or all members of their workforce (depending on age and salary level) into a pension scheme that meets certain minimum standards. Some workers will also have the right to ask their employer to enrol them into an auto enrolment pension scheme. Depending on the worker’s age and salary level, employers may be required to make contributions to this pension scheme, adding to the contributions made by their workers.
The date the scheme applies to you is called the staging date.
The whole scheme is being phased in over 5½ years, with the largest employers having been covered from 2012. The size of an employer’s PAYE scheme determines at what point the new duties affect their organisation. The Pensions Regulator has provided a handy calculator to tell you when the scheme applies to you If you have your Employer PAYE reference to hand you can check it now..
Do we have to do it?
Yes, if you have employees. There is a limited provision for staff to "opt out" (but you mustn't actively encourage them to do this, by law). But even if your staff don't want to join a scheme, you still have to enrol them and then once they're enrolled they have to opt out within a month of enrolment. There's no provision for you to simply not provide a scheme, nor to just ignore the legislation and hope it will go away......
Who do I have to enrol, who can choose, and who isn't eligible?
This chart shows who's in which of 3 categories;
Category 1: "Eligible Jobholders" All employees who are 22 years old and over and earning more than £10,000 a year (2015/16 figures) must be automatically enrolled and you will need to make contributions into the pension scheme.
Category 2: "Non-eligible Jobholders" In addition, employees earning over £5,824 a year (2015/16 figures) must be given the option to “opt in” to the pension scheme and you will need to make contributions into the pension scheme for them if they do so.
Category 3: "Entitled Workers" Finally, employees earning less than £5,824 (2015/16 figures) have the right to join the pension scheme but you do not have to make contributions for them if they do so.
I'm the only director of my own company - does this apply to me?
If you are the sole director and you have no other staff working for you, the company does not have to go through automatic enrolment.
If you believe you don’t have any automatic enrolment duties you will need to tell the Pensions Regulator that you’re not an employer. If there are other staff working for the company, you will have automatic enrolment duties for them. What you need to do will depend on their ages and earnings - see above for details.
We're a husband and wife company - does this apply to us?
If no one else works for the company, it will depend on your roles and if you have employment contracts, as to whether you have automatic enrolment duties or not. You can find more information about employment contracts on the employment status section of the GOV.UK website.
If you are both directors:
- The company will have automatic enrolment duties for both of you if both of you have employment contracts.
- The company won’t have any automatic enrolment duties if only one of you has an employment contract, or neither of you has.
If one of you is a director and the other is not:
- The company will have automatic enrolment duties for the person who isn’t a director.
- If you both have contracts of employment, the company will also have automatic enrolment duties for the person who is a director.
If the company does have automatic enrolment duties for anyone, what you need to do will depend on their age and earnings - see above for details.
A contract of employment does not have to be a written document. In what circumstances would the regulator consider that an implied contract of employment exists and the company should have carried out automatic enrolment duties for the director?
The regulator has set out its' approach to the enforcement of automatic enrolment duties on their website: www.thepensionsregulator.gov.uk/doc-library/strategy-and-policy.aspx
The Regulator says that: "our overall compliance approach is focused on educating and enabling employers to comply with the law. In the event that:
- we were investigating a director-only company for a failure to carry out any of their automatic enrolment duties, and
- there is no written contract of employment or other evidence of an intention to create an employer/worker relationship, between the company and a director or directors,
we will not as part of our approach seek to argue that an implied contract of employment exists."
When do I have to act?
Ideally you'll need to act anything up to 18 months before your staging date, according to the Regulator. However, our own timeline for clients is 14 weeks before your staging date.
How much is it going to cost me?
If you're setting up your own scheme and organising all the payroll yourself, you only need to consider the fees associated with certain pension providers, and the contributions you'll need to make to each employee's pension.
Contributing to the pension of each employee
The law sets a minimum level of contributions to be paid by an employer. At the moment this is 1% of your member of staff’s earnings, but this will increase over the coming years.
Over time, all your members of staff must receive minimum pension contributions of 8%, with at least 3% coming from you, the employer.
You and/or your staff can pay more than the minimum.
Fees from pension prioviders
Feed from pension providers vary greatly; many don't impact the employer but will affect the value of the pension scheme for the employee. Some charge annual fees and these can be on top of any additional costs for payroll and pensions administration. It's worth shopping around, getting some financial advice, or your payroll provider may have a recommendation to make.
Administration, setup and ongoing costs of administration
If you're planning to manage this yourself, then the only costs are in terms of your time and effort. If you'd rather an external provider took it on, have a careful look at both the setup fees and ongoing costs of administering. You should be looking for someone who will;
- Check records and payroll processes, and advise you of the eligibility of all your employees
- Set up a pension scheme for you
- Assess and enrol staff
- Draw up letters to be sent to all staff
- Make the necessary payment calculations and submissions to you and to your pension provider.
Setup fees can vary from £200 to over £500; our own offering is at the lower end of this scale. Annual fees then vary from £2-10/employee per month, so it's worth checking the prices your existing payroll provider is giving you before handing it all over.
How we can help
Whitehill are able to provide all the support you need to get through auto enrolment; we can provide ongoing support as part of our payroll and pensions services, and set up a pension scheme, draft letters to all staff and give you figures so you know how much you'll need to pay and when. Please get in touch and ask for Claire, our Pensions Administrator.