We’ve all started to see the adverts on the TV about work place pensions and auto enrolment.
As an employer you maybe starting to get questions from your staff.
This blog helps to give a small business employer some basic guidance and links to find out more.
If you have staff who earn over £9,440 a year and who are aged 22 to 74 then you must automatically enroll those staff in a pension scheme. When you must do so depends on your staging date.
HMRC have determined staging dates for every employer based on information they held at 1 April 2012. You can find out your staging date here: http://www.thepensionsregulator.gov.uk/employers/tools/staging-date.aspx
For the typical small employers I work with this is in the region of late 2016 to early 2017.
Once you know your staging date, you can start to plan.
The most common question a client will ask, is:
“How much will it cost me?”
The minimum amount that must be paid into the pension scheme is 8% of the staff’s gross earnings (up to £41,450 of earnings).
Of the 8%, the employer must put in a minimum of 3%. In that instance the staff member puts in 5%.
If the employer chooses to put in 5% for example, then the staff member must put in 3%.
These are the minimum contribution levels, but the employer and staff member can pay more in if they chose to. These minimum levels also only apply from 1 October 2018, and are being phased in, so in your first year the contributions maybe less.
The employer will also need to pay the pension scheme’s annual management charge and administration charges for setting up and running the scheme. These vary depending on the scheme. Plus, if you use a payroll provider, accountant and/or IFA to set up the scheme then factor in their costs too.
Another key question:
“Who do I enroll?”
An employer must enroll everyone who is aged between 22 and state pension age, who works in the UK, for whom you deduct IT and NIC from their wages and who is likely to earn over £9,440 in a year.
Although the £9,440 limit is expected to increase.
For those staff you enroll them in a pension scheme without them needing to do anything. They then have the option to ‘opt out’ within a month, whereby any contributions paid for that month will be refunded.
And a staff member can leave the scheme at any time in the future.
For staff who are aged 16-21 and earning over £9,440 a year, the employer must provide an option to ‘opt in’ to the pension.
For staff earning less than £9,440 a year the employer must provide information to them about opting in. And for staff earning less than £5,668 the employer must provide information to them about their right to join a pension scheme (not the same as opting in).
So what should an employer do next:
- Check when your staging date is.
- Decide who is going to manage the process – your accountant, payroll provider or in-house.
- Assess your workforce.
- Find a pension provider.
- Set up the paperwork and communicate with staff.