The time is upon us. Workplace pension auto-enrollment is happening. And your small business needs to have registered within the next 2 years.
The harbingers of doom of two or three years ago were quick to advise that it would be nigh on impossible for businesses to obtain auto-enrollment in a timely fashion, as many of the pension companies would simply be too swamped to handle the requests.
This in turn kicked off an expectation of high fees being charged for the expert advice and setup of auto-enrollment systems.
So, now that we are entering the start of the period for the largest number of employers to register with auto-enrollment, it would appear that these fears have been unfounded. Rather, it seems that with more and more competition, the fees for assessing suitable schemes have subsequently fallen.
And now that auto-enrollment is once again the talk of the town, we felt it was important to take a look at what it means for you and 1.3 million other SMEs, micro-businesses, and new employers in the UK.
A Reminder: What Is Auto-Enrollment?
The auto-enrollment scheme was first launched in 2012 by the government, and it only affected large organisations to begin with.
Small companies began the process in 2015, with the remaining UK companies required to have enrolled by April 2017.
Any new businesses that were set up after 2012 will enjoy something of a grace period, with staging dates staggered from May 2017 to February 2018. As it stands, only businesses that are set up from October 2016 will auto-enroll in 2018, and for all existing small businesses, the staging dates will take place throughout 2017.
In a nutshell, the scheme requires businesses that were launched before 2012 to enroll all its qualifying UK staff into a pension scheme, and pay contributions into it. The staff must be aged between 22 and the state pension age, and they must earn at least ÂŁ10,000 a year. Employees can opt out of the scheme, but employers cannot.
- Minimum Contributions
There will be different bands of minimum contributions into the scheme:
Until the end of September 2017: The total minimum contribution into a scheme for each qualifying employee is 2% of basic pay, which comprises of 1% from the employer and 0.8% from the employee, in addition to 0.2% tax relief from the government.
From October 2017: This will increase to 8% in total by October 2018, and it will be structured so that 3% is contributed by the employer contribution, 4% from the employee, and the remaining 1% provided by the government in the form of tax relief.
You can check both employer and employee contributions via this handy tool from the Pensions Regulator.
- Your Staging Date
Depending on how complicated your payroll is, your auto-enrolment process could take anywhere from 6 to 18 months to complete.
Your staging date is the day that auto-enrolment comes into effect for your business. Typically, the smaller your business, the later the date.
To find out your staging date, use this calculator from the Pensions Regulator.
- Choosing The Right Scheme
You must ensure that you are choosing the right scheme for your business and its employees. A number of the larger insurance firms have already been offering workplace pension products for small businesses, while the taxpayer-backed National Employment Savings Trust is another option.
Some of the available schemes will be limited in their investment options, and they can certainly be more expensive, so itâ€™s important to take your time and decide which one is right for your staff.
Speaking with a financial advisor is recommended, so that you have all your bases covered. And as the deadline approaches for many small businesses, demand is likely to rise quite considerably, so having your staff enrolled in a scheme as soon as possible will save you a period of stress further down the line.
Budgeting For Auto-Enrollment
Itâ€™s okay if you donâ€™t have a huge amount of funds in reserve for pensions; you just need to ensure that you are budgeting correctly going forward.
In the beginning, the contribution levels will be set relatively low, however by 2018 you must contribute a minimum of 3% of basic pay per employee into a pension scheme.
Auto-enrollment will offset your National Insurance bill, due to the fact that the employeeâ€™s contributions will come off of their gross earnings, therefore lowering their take home pay and in turn the level of NI that needs to be paid.
It is essential that you seek out the best available advice regarding the tax implications and NI contributions. And while budgeting can seem overwhelming at the best of times, help is at hand.
Smooth The Way Forward
Donâ€™t try to cut corners when it comes to auto-enrollment. Speak with us and utilise our knowledge of the auto-enrollment scheme to help smooth the way forward for your small business, and your staff.
To find out more, speak with one of our friendly advisors today.