A guide to pensions auto-enrolment
Current Issues | Tax | 19th August 2015
Pensions auto-enrolment is automatic for your staff - they don't have to do anything to be enrolled in your pension scheme. But it's not automatic for employers - you must take action to ensure that eligible employees are enrolled.
The auto-enrolment legislation has been applied to the largest employers first. Now smaller employers are being affected and over a million will be required to comply in the months ahead.
What's the big idea?
Pensions auto-enrolment was introduced to ensure people have enough money put aside for their retirement. The normal state pension in 2015/16 is £116 per week. Back in 1910 when it was introduced, there were ten workers for every retired person, now there are three and in 20150 it's projected that there will be just two. In the future, pensioners won't be able to rely on tax and National Insurance contributions (NICs) from workers to pay them a decent pension. They need to have their own pension pots.
Surely I'm not affected?
If you are the sole director of your own company and there are no other employees then you don't have to implement an auto-enrolment pension scheme. However, you will still need to notify The Pensions Regulator (TPR) in writing.
The rules covering husband and wife or family companies are extremely complicated with no clear logic to their application. The decision as to whether or not auto-enrolment applies can depend on factors such as whether some or all employees are directors or whether employment contracts are in place. If you think this could affect you, please ask us for help with clarifying your position.
What do I actually need to do?
TRP has already written to all employers to tell them the date by which they need to have implemented their scheme. You can check your staging date on the TPR website here.
Between now and your staging date, you need to:
- assess your workforce to work out who needs to be included (see below)
- review current pension arrangements to see whether you can use an existing scheme, whether it needs to be amended or whether something new is required
- comunicate the changes to all your employees.
At staging and beyond, you need to:
- manage opt-ins and joiners, automatically enrol new employees and those who have become eligible, including enrolling those who opted out three years ago (employers must re-enrol an employee every three years even if they've opted out)
- process those who opt out
- calculate employers' and employees' contributions
- ensure employees' contributions are deducted from their earnings
- pay and allocate all contributions to each employee's pot with the pension provider
- register with the TPR and keep records.
We are not able to help you with all aspects of auto-enrolment and you are likely to need assistance from an Independent Financial Adviser (IFA). An IFA is permitted to assess your needs, recommend suitable pensions providers and help you with its implementation - perhaps making a presentation to your staff, for example.
If you would like an introduction to an IFA familiar with the auto-enrolment rules we would be happy to help. We have clarified the scope of the work needed so that some IFAs will provide fixed fee options if required.
Counting the costs
As well as the costs of pension contributions for your employees, additional payroll work may be required. This can vary considerably. Where there is clarity over the division of responsibilities and there are clear procedures for exchanging information, the time required to run the payroll with pensions auto-enrolment is around 20% more than it was before.
However, if the information exchange process with the auto-enrolment provider is not so clear, or more complex, the cost of running the payroll can easily double. So selection of the right provider is key.
Getting help with your auto-enrolment pensions administration
Factors to consider when assessing a potential pensions auto-enrolment administrator (which may effectively be a software package), include:
- employee communication, pension and administration issues
- interface to the payroll system you use
- no license fees or direct charges to the employer
- no complicated decisions on how to comply
- no risk of non-compliance fines
- employee queries.
There are several providers of auto-enrolment services and of course numerous potential pension investments. You or your IFA will need to decide which providers are appropriate for you and your employees.
One commentator has suggested that to deal with the whole auto-enrolment process yourself could take around 103 man days, so you may require outside assistance. However, there are concerns as many providers are already at full capacity ansd won't take on any more schemes. So, the sooner auto-enrolment is addressed the better. For more information about pensions auto-enrolment go to: www.shipleys.com/resources/issue/auto-enrolment-basic-steps.
Specific advice should be obtained before taking action, or refraining from taking action, on any of the subjects covered above. If you would like advice or further information, please speak to your usual Shipleys contact.