This is something we have been asked about by clients many times. It is not something we directly work with, so in the interests of giving the best possible information the below is provided by Paul Stow of Lighthouse, a man with over 25 years financial experience and to whom this subject is second nature.
Background To Auto Enrolment
Current economic conditions and changes in legislation make this a challenging environment for many businesses: low interest rates and shortage of finance, coupled with rising costs and the imminent burden of adding to those further through the government’s “Auto Enrolment” programme, which requires you to set up and fund a workplace retirement scheme for your staff by 2017 at the latest.
This prospect fills most business owners with dread because of both payroll and administrative costs, and understandably you don’t feel qualified to make this type of decision.
Auto Enrolment Basic Facts
- All employers are given a staging date based on their PAYE scheme size at April 2012, although the employer has an opportunity to bring this forward if appropriate
- When this date arrives, employers will be legally obliged to automatically enrol all of their ‘eligible jobholders’ (workers aged between 22 and State Pension Age, and earning more than £9,440 a year in 2013/14) into a ‘qualifying scheme’ (a scheme meeting certain standards) and pay contributions on their behalf, unless all such individuals are already active members of such a scheme, or they subsequently opt out of scheme membership
- The minimum contribution rate that needs to be satisfied is 8% of ‘qualifying earnings’ (which are total earnings in the band between £5,668 and £41,450 in 2013/14), with the employer picking up at least 3% of that cost
- There are additional options available to meet the minimum contribution requirement
- Contribution levels are being phased in through to October 2018 , and on the basis of our life expectancy rising over time, these current minimum funding levels will only ever increase
The obvious reaction at this stage is one of confusion of panic, but fear not. There are a few key things you can do to make auto enrolment simpler, read on…
Auto Enrolment 10 Top Tips
- Clean employee data – employers should make sure the data they hold for the workforce is up to date and they have all the information they need in the correct format, for example having email addresses may make the communication process easier
- Assess the workforce – workers will fall into three main categories: * Eligible jobholders who must be auto-enrolled, * Non-eligible jobholders who must be given the right to opt in, * Entitled workers, who must be given the right to join a pension scheme
- Review existing pension arrangements – is there an existing scheme that already meets the qualifying scheme conditions or could be adapted to suit? What changes need to be made to make it suitable for auto enrolment? How will the scheme meet the minimum contribution levels?
- Communicate with workers – having a communications plan in place will help the employer get the right information to the workforce at the right times Automatically enrol all eligible jobholders and make sure their scheme membership is achieved in the correct timescales
- Manage any opt-ins – make arrangements for any non-eligible jobholders who want to opt in and entitled workers who want to join
- Manage any opt outs received, and make any appropriate refunds of member contributions deducted, within the correct timescales
- Register with the Pensions Regulator within a maximum of four months after the staging date, and make a plan to re-register every three years
- Ensure the agreed contributions for, and on behalf of, jobholders are made in the appropriate timescales
- Keep scheme records and be prepared to provide information to tPR if asked to do so
- Make sure the employer has a re-enrolment process in place to repeat the enrolment exercise, broadly every three years from the staging date
Still Confused About Auto Enrolment?
You probably are and wouldn’t blame you. The easiest thing is to bring in an auto enrolment expert to take the hassle away. That said, it is always better to have some knowledge as there will be businesses where auto enrolment will come as a nasty wake up call.
If you have any comments about this post please add them above, or contact us via the website and we will always get back to you. For any direct questions about auto enrolment then contact Paul Stow on 07913 204953 or email@example.com
By Dave Farmer