The year 2017 is set to be an important one for small and medium sized businesses throughout the UK. It marks the deadline by which every business that employs staff will be legally obliged to offer, and contribute to, workplace pensions via the process of auto-enrolment.
A study from 2013 found that 59% of businesses were unprepared for auto-enrolment, this included 90% of firms with fewer than 100 employees. This is despite the fact that more than 1.3m SMEs, micro-businesses and new employers are expected to meet their “staging date”, the date by which businesses must offer a workplace pension for employees, in the very near future.
For most small business owners, pensions are a daunting prospect. But you don’t need to worry, auto-enrolment will also bring certain benefits, and there’s still plenty of time to prepare to make sure you’re ready for the change.
What is it?
The government has radically changed the rules and regulations surrounding pension provisions in order to enhance personal pension funding. By bringing in auto-enrolment and compulsory employer funding, the government has taken away the factors that has tended to encourage a poor pension scheme take up in the past, namely the need for employees to opt in, and the fact that there is typically no employer contribution.
The auto-enrolment project first began in 2012, but only large companies were affected to start with. Small businesses first began to be affected in 2015, with all existing UK companies expected to be enrolled by April 2017. New businesses that were set up after 2012 have slightly longer, extending from between May 2017 through to February 2018 depending on when they were set up.
Essentially, the scheme requires businesses created before 2012 to enrol all qualifying UK staff, (that is, those aged between 22 and the state pension age, and that earn at least £10,000 a year during the 2014/15 tax year) into a pension scheme, and pay contributions into it.
The new scheme is not just a money-pit for SME owners, but does in fact hold hidden benefits for employers and employees alike. Most notably, it provides an added incentive for staff without the need to increase salaries or provide other, often expensive, incentives such as gym memberships or health insurance.
Who is affected?
Currently, if you employ less than five members of staff, you’re not under any obligation to offer your staff pension benefits. If you employ more than this, the minimum requirement is that you have to provide access to a stakeholder pension scheme.
The date by which you have to be compliant is called your “staging date” and is decided by the number of employees you had on the 1 April 2012 and your PAYE reference number. The earliest date was 1 October 2012 for employers with 120,000 or more employees, and has been gradually working through companies with fewer employees, with the earliest start date for a company employing 30 or less being the 1st June 2015.
The Pensions Regulator has a handy calculator that can work out your staging date from your PAYE reference. You can find it here.
As a small business owner, it’s important to remember to budget for your staging date. It’s unlikely that your company will have money already set aside for a pension scheme, but there’s no need to panic, it doesn’t have to mean instant bankruptcy. Your pension contributions will actually lower your National Insurance bill. This is because the employee’s contributions to a pension will come out of their gross earnings, automatically lowering the amount they take home each month, and therefore less NI will need to be paid. Also, to begin with, contribution levels are set quite low, although by 2018, employers must pay a minimum of 3% of basic pay per employee into a pension scheme.
What do I have to do?
Making sure your business has the most suitable pension scheme in place is essential to offering a quality benefit to your employees whilst also reducing the costs and time associated with administering the scheme.
The Pensions Regulator will be contacting all Employers between 6 and 12 months before their staging date with full instructions on the next steps. If an Employer does not offer their own pension scheme they will need to choose one. If they do already have one, then this will need to be confirmed by the Regulator to make sure it qualifies within the new guidelines.
As of their prospective staging date, any employer employing at least one person will be legally obliged to
- Set up and register a pension scheme suitable for auto enrolment
- Assess all staff eligibility at every pay period
- Automatically enrol and make contributions for all eligible jobholders
- Enrol and make contributions for non-eligible jobholders who wish to join
- Manage the auto enrolment: including the joining and opt-out process
- Keep records on how they have fulfilled their responsibilities
What happens if I don’t?
It’s important to make sure you’re prepared for your staging date well ahead of time, as the tasks you need to have completed for auto-enrolment can take anywhere between 6 and 18 months.
Employees will also be able to ‘whistle-blow’ if the feel they have been subject to detriment or dismissal for making a protected disclosure under whistle-blowing legislation, if their employer fails to comply with the auto-enrolment legislation.)
In order to ensure compliance with the employer’s responsibilities, the following three stage process for non-compliance has been put in place by the Pensions Regulator.
Stage 1: compliance/ unpaid contribution notice
This will detail the breach and detail the timescale over which the employer has to put it right. Interest may be required on unpaid contributions.
Stage 2: fixed penalty notice
If the breach has not been rectified by the given time a fixed penalty of £400 will be applied.
Stage 3: escalating penalty
If employer continues to fail to comply with the first and second notice, then a daily penalty will be payable based on the number of employees.
Preparing yourself and your business for pension auto-enrolment doesn’t have to be a headache. Simply use this guide to find out what you need to do, and when you need to do it by, and you’re already well on your way to being in accordance with government guidelines when your staging date eventually rolls around.