New legislation states that by October 2018 every qualifying employee should be offered a workplace pension. This is the responsibility of the employer, which means all businesses with one or more employees need to have access to a qualifying
automatic enrolment pension scheme to be compliant.
For some, the scheme can seem daunting – even scary – with most operatives not having a clue where to start. Take Stock spoke to Jon Lee, director of Pumped Business Solutions (PBS Ltd) who specialise in introducing on-trade operators to the workplace pension scheme at an affordable level. He explains all about automatic enrolment; its importance and why it’s something you most definitely should not be putting off.
What is automatic enrolment?
Recent legislation has stated that qualifying employees now have the right to contribute to a pension and automatic enrolment is the way to do that – known as the ‘workplace pension’. The government has made it the obligation of the employer to provide access to a workplace pension and make it available to all their eligible employees earning £10,000 or more, aged between 22 and the state pension age and who are a UK resident.
When does it get enforced?
By 1 October 2018, all employers in the UK will have to have the system in place. Before then, each employer has a ‘staging date’ – the date they must have it set up by. Last August all employers received a letter notifying them of their ‘staging date’, these dates have been going in waves across the country depending on the size of business and number of employees.
What’s the cost?
The fear among business owners – especially landlords – is that implementing the scheme will cost them thousands of pounds. The reality is it won’t; as long as they don’t leave it until the last minute. NEST, the free government scheme, lets them set it up by themselves. It relies on the employer reporting to the pension regulator and completing ongoing assessments of the workforce as well as calculating contributions, but in reality how many people will do that? We work with an automatic enrolment operator who can set the system up for as little as £495*, plus a monthly £5 per person per month for completing the ongoing assessment.
* Payment dependent on staging date
How does it work?
The employer will fill out an application form acknowledging who they are and who needs to be added to the scheme. They submit the application to the enrolment operator who then starts the process of automatically enrolling qualifying employees and invites the other workers to join.
What if an employer doesn’t comply?
I can’t stress enough how important this is. It’s the law. Non-compliance is taken as seriously as tax fraud; with fines up to £10,000 a day – even prison in some cases. And just to be clear here, it’s the employer’s responsibility to auto enrol their qualifying workers into a pension scheme, not the employee.
When should an employer start setting up?
Ideally they should get the ball running now. The sooner the better, really. The government recommends that you start to set up the scheme well before your staging date – 12 months if you can. That way any complications can be sorted well in advance and not last minute, as the staging date is the date your system should be live not the date you start working on it. So if your staging date, for example is July 2017, then you should start it July 2016 at the latest.
What happens if they leave it until the last minute?
I appreciate that July 2017 seems so far away and therefore a lot of on-trade employers will be thinking they have plenty of time (especially if they only have four or five members of staff it affects) and won’t see it as a priority – but it is. There are two ways you can do this: early staging for less money, or late staging for more money. I tell all my members to ask about it and get quotes, but in truth if you leave it three months before your staging date it is going to cost you more.
What if the staffing situation changes?
If an employer is aware that one of their members of staff is leaving or planning to leave in the near future they still have to set the scheme up based on the number of staff currently in their workplace. If an employee leaves their business they can take their pension (money already collected) to their next employment, where in turn, that employer will also have the scheme set up. That’s why the scheme has been set up, to make sure every employee has a pension. Easy!
How much does an employer have to put in?
If your staging date is up to 30 September 2017 the employer has to contribute 1% of their employee’s salary – with the employee doing the same. So, as an example, if an employee is on a £12,000 salary both the employer and the employee would each be contributing £10 a month. It then changes to 2% contribution by the employer and 3% by the employee from 1 October 2017 to 30 September 2018. From 1 October 2018 onwards * the employer will pay 3% and the employee 5%.*
Does an employee have to join the scheme?
Up to 30 September 2017 it is compulsory that the employer enrols the employees that qualify into the scheme, but after one month if the employee chooses to leave the scheme they can opt out. Every three years the employer has to re-enrol eligible workers back into the pension scheme. If an employee leaves their job and finds new employment, the new employer has to automatically enrol them, if they qualify, into the scheme but the same option applies should they wish to leave. Remember, not only are you fulfilling a legal requirement to set up a work-based pension, but you are enhancing your workers’ benefits package.
For more information visit www.pumpedbusinesssolutions.co.uk and download the easy to understand info pack, or call Pumped Business Solutions today on 0800 050 2626
* The above details are current legislation, all figures in the examples quoted are exclusive of tax and for demonstration purposes only, figures are correct at the time of printing but are subject to changes in legislation.
“Please note that Today’s Group / Take Stock are merely passing on information received from third parties in connection with possible options in respect of important issues such as auto-enrolment pensions. In passing on information, neither Today’s Group nor its associate companies are providing advice regarding pensions nor giving any form of financial advice to its partner companies or their employees. If any individual wishes to receive advice regarding their pension, you should contact an Independent Financial Adviser”.