Auto-enrolment is coming – and you’d better be ready. The first wave is already underway, with the nation’s largest employers now legally required to enrol all eligible employees into a workplace pension scheme, but pretty soon it’s going to be the turn of small businesses. By 2017, all UK employers – from families with nannies to the largest corporations – will be required to operate an occupational pension scheme.
Many smaller employers have never had to think about pension provision before, and the legislation can be complex and confusing if the right financial and legal advice is not sought. It is estimated that about 75% of small employers have no workplace pension scheme at present, and they will have the biggest hurdles in front of them.
The amount of preparatory work for auto-enrolment has been severely underestimated by a number of employers already, so it is best to start planning well in advance. To find out when you will be required to implement auto-enrolment (your ‘staging date’), it’s best to check the Pension Regulator’s website and begin finding out about the changes your business will need to instigate to be prepared for auto-enrolment.
In taking key decisions away from employees regarding their pension savings, there is an increased administrative burden on employers. Payroll systems must be capable of identifying eligible employees and deducting contributions from their salary as required. Employees’ circumstances (and therefore their eligibility) can change frequently and administrative systems must keep up to date to achieve full compliance with legislation.
Not only that, but employers will need to begin budgeting for the extra costs to their business. At your staging date you will only be required to pay 1% of your employees’ salaries into a pension pot, but by October 2018, this will rise to a 3% statutory contribution.
However, it is possible to see this pension expenditure as an investment in recruitment and a driver of organisational performance. Selecting a suitable pension scheme is a crucial decision, especially if you are unable to adapt an existing arrangement. Engaging with employees and aligning pension arrangements with business aims, culture and branding can attract new talent to your business and encourage greater performance from existing employees.
Although many employers do not agree with auto-enrolment legislation, wilful failure to comply is a criminal offence, and may attract fines, imprisonment or both. So, is your business prepared for auto-enrolment?
By Matthew Selby, who writes about pensions and employee benefits for Now Pensions and others.