By Michelle Quince, Senior accountant at Hive Business
Automatic Enrolment is a major change for employers; Hive is here to ease your pain and provide you with expert advice. With so much confusion surrounding the rules of Automatic Enrolment, our Payroll Manager, Michelle, answer’s your FAQ’s.
We now live in an ageing society. Nearly 18% of the UK population is over the age of 65, with that figure predicted to rise to almost 24% within the next twenty years. And, for the first time in history, Britain’s over-65s now outnumber the number of people under the age of 16. This creates a wide number of issues including additional pressure on healthcare and social services, along with recruitment problems when experienced workers retire and the number of people of a working, taxable age shrinks.
None of these issues can be solved overnight but the Government implemented new legislation in 2010 in order to help answer one of the bigger questions – how will people fund their retirement?
Nobody wants to work forever but many workers have not considered about saving for their retirement. They are putting their faith in the state pension for regular income once they hang up their uniforms and start to spend their days playing golf, gardening or doing crosswords. With the ageing population, the Government realised that the state pension is unlikely to be sustainable at it’s current level and therefore, looked at employers to help their employees to save for their retirement. And so, AUTOMATIC ENROLMENT was born.
The idea is that, as an employer, you will help your staff to save towards their retirement. The new legislation requires you to set up a pension scheme and then enrol eligible staff members into that scheme. Then, every time you pay your staff, you deduct a small amount from their pay and pay it into the pension scheme. At the same time, you make a similar contribution on behalf of your business (which is treated as a tax-deductible expense). So like the advert says “every time you pay in, your boss pays in too”.
Your FAQ’s answered here:
Can I bury my head in the sand and hope it all goes away?!
Unfortunately not! “The Pensions Regulator”, who is the UK regulator for work-based pension schemes, has been tasked with ensuring compliance with the legislation. Financial penalties can be levied for non-compliance.
When does this whole Automatic Enrolment thing start?
Each business is different and you will need to find out your “Staging Date” from The Pension Regulator. This is the date by which you need to have your workplace pension scheme setup and you need to start making contributions on behalf of your staff.
What makes a workplace pension scheme different from my current staff pension scheme?
Your current scheme is unlikely to meet all the criteria set out by the Government but it’s best to check with your pension provider before your staging date to make sure that you can continue to use your current scheme. Most of the large providers have unfortunately chosen not to service the small business section of the market based upon their profit margin needs, so the process has become far more onerous that the government intended.
Who do I need to enrol on the scheme?
Any employee aged between 22 and the state pension age (which varies dependent on the employee’s date of birth) who earns over £10,000 per year. However, any of your employees may be able to opt-in to the scheme if they choose too. You will also need to formally correspond with your staff to explain how the scheme works and to outline their obligations to make contributions.
How much do I have to pay into the scheme?
The minimum contribution each pay period starts at 1% of the employee’s qualifying earnings (normally their gross pay) – you pay in 1% and they pay in 1%. This will increase to 2% each from October 2017, and further increase to 3% each from October 2018.
How can Hive help me?
We will be able to point you in the direction of an Independent Financial Adviser (IFA) who has purpose-built a pension trust for small businesses. Indeed, such is his expertise we have chosen to go into joint venture with him to provide the best service to our clients with pensions.
Hopefully, this has helped to answer some of your initial questions regarding Automatic Enrolment but if you have any more specific questions, please give me a call 01872 300232 or email us at [email protected].