Top 100 Tips for Businesses - #14 Auto Enrolment
Wayne Audsley, co-director of our sister company James Financial, has one message for small businesses bamboozled by the new pension auto-enrolment rules: ‘don’t be caught out’.
This is because, ready or not, anyone owning a business of any size, that has not put a suitable pension scheme in place by its so-called ‘staging date’, could face hefty fines.
Here, he has some sound advice for businesses on how to go about it.
“Every worker in the UK will have to be assessed for auto enrolment under the new regulations, and this means that every business needs to make provision for them to do so,” said Wayne.
“Most of the big companies have already done so, although we’ve seen large fines being imposed on some large businesses for not being ready, including Swindon Town Football Club and national retail chain Dunelm Mill.
“What too many organisations haven’t recognised yet, is that the Government really isn’t messing around on this, and does expect businesses – no matter what their size – to get their houses in order.”
If you are reading this and fear that could be you, you need to seek expert advice without delay, according to Wayne.
“Every company should have received a notification of their staging date a year in advance, followed by a three-month warning,” he continued.
“If they haven’t acted on either of those things, they need to do so without delay.
“Even if they have, I would advise them to check they’ve done it by the book. We’ve come across clients who have been under the impression their accountants or payroll team have sorted everything out, but have then been shocked to discover that their pension status hasn’t been logged correctly, leaving them exposed.
“There are strict rules about how you administer your scheme and communicate about it with your employees, to make sure they are clear what their options are. Business owners need to make sure this is all done right because the buck stops with them.
“They can incur a fine of £400 if their scheme isn’t ready by their staging date and then, if they have between one and four members of staff, £50 per day thereafter. If they have between five and 49 staff, the fine increases to £500 per day. From 49 upwards, it escalates to £2,500 per day, so the amounts really do start to add up and you can see that the pensions regulator is pretty serious about this.”
How to ensure you’re covered
Wayne offered some step-by-step advice for sorting out your pension scheme, if you’re among the alarming number of businesses employing 49 people or less that haven’t done so yet.
- If you’re a director of your own limited company and employ no staff, you’re exempt, but you still need to tell the regulator that officially – you can’t just assume that it’ll be OK. On your staging letter, you will find details of how to contact the The Pensions Regulator and let them know you wish to opt out.
- Every business will have received a staging letter. So make sure that you haven’t put yours in a pile of papers and forgotten about it. If you have, dig it out and start putting plans in place to set your scheme up. Your pension scheme needs to be ready to accept contributions by your staging date. It is true that you have the right to postpone the commencement of employees’ contributions for up to three months from your staging date, but your scheme must be ready to accept them by the staging date. This is because, if a staff member requests to start making contributions immediately, you must allow them to do so.
- Then, you need to assess your employees to see who is eligible for auto-enrolment and who isn’t, and provide them with an appropriately worded letter, explaining that they have been assessed and will either be auto-enrolled as a result, or not. If an employee is eligible, you have to put them into your scheme. They can then choose to opt out later but they have to be added in initially and you have to be able to prove that you have appropriately explained their options to them. So-called ‘eligible job holders’ are employees aged 22 or above who earn £10,000 per year or more.
- If anyone does choose to opt out, you must deal with that and pay them back any money that they have paid in within 30 days. After that, they won’t be able to get their hands on their money until they hit retirement.
- You need to keep adequate records of the entire process, the notices you’ve issued, the assessments you’ve carried out and whether people are eligible for auto-enrol ment or not. You need to be able to produce these records for assessment by the pensions regulator at any time.
- The minimum percentage payment you need to put into someone’s auto-enrolled pension is currently set at two percent, one from you as an employer and one per cent from the employee. From April 2018, this will increase to five percent, two from you as the employer and three per cent from your employee. In 2019 this will go up again, to eight per cent, three from you as the employer and five per cent from the employee, and the industry expects employer contributions to go up again in 2019, to 12 per cent, given the pressure the nation is under to provide for people’s retirements, and the likelihood that people will increasingly be expected to provide for their own futures.
The only way is up
Wayne added: “There’s no doubt that all of this represents quite a cost for businesses, however the fact of the matter is that pensions are a ticking time bomb and the money to provide for a population that is living longer in retirement, is increasing.
“When the State Pension was first introduced, people were only expected to live for a couple of years after starting to claim it, and that meant there were five people contributing for every one person claiming. Now, the tables have turned and there are only two people working for every individual claiming and people are living for an average of 18 years beyond the typical pensionable age.
“This means the Government simply has to create new ways of funding people’s retirement. It is also why people now have to contribute to the State Pension for 35 years before being able to claim it, compared to the 30 years that were required before, and this is likely to extend further in the future.”
Seeing this as a positive PR opportunity for your status as a responsible employer is one way to sweeten the pill, according to Wayne.
“Although businesses might feel that they are being forced to do something which directly impacts their bottom line, if they can rise above that and see it as a positive reputational move which will help with business objectives like recruiting the right people, this might help them feel better about it,” he said.
“Embraced positively, it could be the thing that differentiates your business from its competitors.”
If, having read this blog, you feel you and your business could benefit from Wayne and Phillip’s advice, you can contact them via 01482 860700
If you would like further information about James Financial, you can visit their website here