Auto Enrolment – The Facts
By 2018 all employers will have to enrol their eligible workers into a pension scheme. The new law is called Automatic Enrolment or AE. Employees have the right to opt out but if they choose to contribute then their employer has to do so too. Consequently, the plan is that many more people will be able to build up savings to help cover their retirement needs.
The new law affects all employers, right down to businesses with just 1 employee. Eligible employees are those aged 22 but under State Pension Age who are earning more than £10k per year. Other employees can opt in too. All employers have what is called a staging date which is the date when they have to become compliant. These dates vary and can be very soon or as far away as 2018. So if you haven’t done so already, your first step is to find out your staging date.
The Pensions Regulator recommend that employers start planning their AE project around a year ahead of their staging date. That will give you an idea of how many tasks businesses owners are expected to fulfil. Until now only large and medium sized businesses have had to comply but from January, roughly 100 thousand small businesses per month have to do so too. Will this lead to a capacity crunch and the 1 year project getting even longer. Oh yes, and there are fines for non compliance too which at the low end are £400 initially then £50 per day until you become compliant. Employers really need to start confronting this now!
So what about contributions? Once you’ve completed your project, chosen a pension provider, written to all of your eligible employees and enrolled them you’ll be expected to contribute 1% of each employees salary (matching their contribution). This will rise to 2% on October 1st 2017 and 3% the following year. However, Australia have been running a similar scheme for 20 plus years and their employer contribution is now 9.5% which will rise to 12 % in 2025. This inevitable rise will have a significant effect on SME profitability.
What’s the best way to achieve compliance? Financial Advisers are charging huge sums and are able to cherry pick who they work with. Accountants are not Financial Advisers but may have a solution which may come at significant costs too and will not give a choice of pension provider (something the Pensions Regulator is very keen on). At Your Business Community (YBC) we are able to offer a solution that takes most of the administrative burden off of business owners, gives a choice of suitable pension providers and comes at a price that is affordable for even the smallest businesses