How to Best Prepare for Auto-enrolment
If you haven’t been keeping up with the world of auto-enrolment of late (and I can’t see what’s kept you away) you’ll have missed news from The Pensions Regulator that one in five employers are missing their staging dates. In fact, over the last year the regulator has issued £12.6m worth of fines. There are many reasons that a company misses its staging date and it’s understandable that some small businesses employing a handful of staff do not feel as though they have to offer an auto-enrolment scheme but auto-enrolment is compulsory to SMEs and with a little planning, employers can avoid a lot of stress. Here’s a simple guide detailing how best to prepare for auto-enrolment.
1. Work out your staging date
This date is determined by the size of your largest PAYE scheme but if in doubt you can check your staging date online via The Pensions Regulator
2. Find a good service provider that caters for all your needs
There’s good reason that this is stage 2 – if you find the right service provider, then much of what follows will be taken on by them for a minimal monthly fee (often around £15 per month). Many SMEs are short of time and sorting out a company pension scheme can feel like another huge task so finding a trusted provider that takes the heavy burden of setting up the scheme in its entirety from them, is important. Quality services will help walk them through the process, assess their eligible workers (and provide guidance for them) and review their existing pensions scheme for eligibility all from start to finish. That can be valuable in terms of time, effort and peace of mind.
It is vitally important that employers feel their employees have good access to their schemes and that they understand what they are investing in and how their contributions are doing. Choosing a provider that will not only provide detailed and clear information on this and provide an ongoing communication service is important in making your employees feel secure.
3. Assess your workforce for eligibility
For those who have been left with this task, you will need to assess which employees should be automatically enrolled in the pension scheme and make contributions on their behalf.
Put simply, an eligible employee is one aged between 22 and State Pension Age and earning over £833 per month (equating to £10,000 a year). And staff who fall outside of these age and earnings criteria have a right to opt into a pension scheme if they want to.
4. Review your existing pension scheme
If you have an existing pension scheme (which qualifies as an auto-enrolment scheme) for your employees, you may wish to consider enrolling all eligible parties into this. If your existing scheme does not qualify, you may be able to change the scheme rules or amend the terms of the policy so you will be able to use it. If you do not have a scheme in place or you cannot use your existing pension scheme, you will need to choose an AE provider and enrol all eligible employees.
To be a qualifying scheme, minimum contributions must be made or it must provide a minimum rate at which benefits will build up. A suitable scheme cannot impose barriers to joining or require staff to make an active choice to join.
5. Communicate the changes to all your workers
Employers must inform all their employees in writing about the changes detailing how they are affected by the changes. This communication must be provided in writing and must be specific to the individual. The duty is on the employer to provide the right information to the right individual, at the right time. Again, if you choose a quality service provider, they will ensure the initial and ongoing communication process is in line with regulation on your behalf.
6. Start contributing to your employees’ pensions
On reaching your staging date the scheme must be set up and you must contribute to the pension scheme on behalf of the employees automatically enrolled along with those that have chosen to opt in. The minimum contributions are currently 1% employer, 1% employee. This will change in April 2018 to 2% employer, 3% employee and again in April 2019 to 3% employer 5% employee. This ‘phased’ rate will apply to most, though not all, types of pension scheme (your scheme provider will be able to tell you if phasing applies to you).
7. Register with The Pensions Regulator
You are required to inform the regulator how you have fulfilled your new auto-enrolment duties by registering this information online via a ‘declaration of compliance’ ideally shortly after your staging date but no more than 5 months after this date. You will also need to maintain specified records about enrolled employees, their status within the scheme, the payment of contributions and the qualifying scheme itself. Records will also need to be kept for those enrolled employees that opt out of your pension scheme. You will need to monitor the age and earnings of all workers who are not eligible employees and not already in a qualifying scheme on an ongoing basis. If any employee’s circumstances change so that they become eligible, they will need to be automatically enrolled in the scheme.
And finally, if any companies identify with any of these scenarios and, more importantly, find that they have missed their staging date and have missed the 6-week period required to invoke postponement, help is at hand if you follow this five point plan:
- Get in touch with the Pensions Regulator immediately - the quicker you get in touch (and depending on your situation) the better positioned you will be to avoid a fine.
- Register with an AE provider - Be aware that not all pension providers allow you to set up a pension scheme if your staging date has already passed
- Assess your employees and communicate with them - Any eligible employees need to be enrolled
- Backdate any missed contributions - In order to become compliant, you will need to backdate contributions for all employees who are eligible or who have opted in.
- Complete your Declaration of Compliance – your scheme provider can help with this but it’s important in order for you to become fully compliant
01799 581 200