What is this change? Well, taking place in businesses up and down the country right now is the introduction of auto enrolment workplace pensions. Affecting around 11 million employees, if you employ even one of them this almost certainly affects you and your business.
Given the poor savings culture that exists in the UK, many millions of workers face a financially bleak retirement. In fact, it is widely believed that around one fifth of the adult population has no savings of any sort and of those who do have savings the nest egg is rather small, with a third having less than £500 and two thirds less than £10,000. Shockingly, recent figures from ING show that the average savings account now stands at £1,678, a 17% fall since 2009.
With final salary pension schemes now pretty much a thing of the past, public sector pensions being cut, and years of weak pension fund performance in the private sector, the government has had to act. Their response was new legislation that introduces auto enrolment schemes into the workplace. Schemes that should bring about a tidy pension pot for millions of workers. This kind of approach has been highly successful in many other countries and it is hoped that the same level of success will be achieved here in the UK.
Starting in October 2012 the new system began a phased rollout. Beginning with the very largest employers this rollout will take five and a half years to be completed. The date that your business is expected to be compliant very much depends on the number of workers that you employ. The full list of staging dates can be found on the Pensions Regulator website, but as a very rough guide these dates will be between Oct 2012 and Feb 2014 for large employers (over 250 workers), between April 2014 and April 2015 for medium employers (50 to 249 employees) and between June 2015 and April 2017 for small employers (up to 49 employees). There are exceptions, for instance new employers (established after April 2012) will have a staging date of between May 2017 and February 2018.
So what exactly is an auto enrolment workplace pension?
As an employer you will be expected to provide a workplace pension scheme for anyone you employ in the UK who is between 22 years and retirement age, earns in excess of £9,440 (changeable each year) and for whom you deduct tax and National Insurance contributions from their wages.
Unless they choose to opt out, you will be required to automatically enrol your staff into a suitable scheme. A percentage of their gross earnings (within annually fluctuating earnings limits) will be paid into the pension each month, along with a contribution from you the employer, and also a contribution from the government equal to the amount of tax that was paid on the earnings.
The percentage contributed by the employee and employer will be gradually increased over a six year transitional period to soften the impact of the payments. Workers who fall outside of the auto enrolment criteria may still be eligible to join the scheme on a voluntary basis, however, there may be no requirement for the employer to contribute to the pension in certain instances.
Under the new legislation employers will have certain duties to uphold. They will be expected to provide their staff with information regarding the changes, their options, details of the pension scheme, how much they will need to contribute and how to opt out. In addition, employers are expected to register with the Pensions Regulator, to keep certain records, and to report back as required. These records must be kept for a period of 6 years.
Providing a suitable scheme
How you choose to provide a suitable workplace pension scheme is entirely up to you. Probably the easiest and least stressful way is to use a full service pension’s provider such as Friendly Pensions.
With this option you will know that the scheme will be fully compliant with the new legislation, and you can rest assured that your employer duties will be taken care of properly and professionally, leaving you to focus on running your business.
However you choose to implement your workplace pension scheme make sure that you have a plan in place to deal with the necessary steps required. You will need to ensure that every step is undertaken in a timely and proper manner, and that when your staging date arrives you are in a position to get your scheme operational. Thinking about this now will avoid stress and aggravation further down the road. Don’t leave it until the last minute.
David Austin is the Managing Director of Friendly Pensions Ltd, a full service workplace pension provider with an uncompromising focus on providing market leading service levels and high growth pension solutions that guarantee to be ethical and earth kind.