Auto enrolment pensions – What you need to know as a small business.

 

If you run a small business within the UK, regardless of the number of employees in your charge, you may be aware that it is now law that you offer Auto Enrolment Pensions. This means you will be obliged to put in place a qualifying workplace pension scheme and automatically enrol any qualifying employees. As the Employers, you will then be obligated to contribute to these pensions with each pay period.

 

What do I need to do as a small business?  

 

Most large companies have now put in place auto enrolment, which became compulsory during 2012. In 2016, it is now the staging date for small and micro businesses (the date by which you must have your employees on an auto enrolment pension). If you do not know the date this is expected for your business, thePensions Regulator should have written to you to confirm your staging date however can also check for yourself on The Pension Regulator’s website using your PAYE reference number.
How do I sign my employees up to an auto enrolment pension?

 

Your employees will fall into one of three groups which can be identified by an assessment. These are known as eligible, entitled and non-eligible.

Eligible Employees must be enrolled and the employer must pay the minimum contribution. They must work in the UK and the criteria for this includes;

  • Aren’t already in a qualifying pension scheme at work.
  • Are aged between 22 and the state pension age (the earliest age they can claim their state pension).
  • Earn at least £10,000 in a year (this figure is reviewed by the government each tax year).

 

Non-eligible employees can ask to be enrolled into the scheme and if they do, the employer must make the minimum contributions. These are UK workers who are either:

  • Aged between 16 and 22 or between state pension age and 74 and earn more than £10,000 in a year, or
  • Aged between 16 and 74 and earn at least £5,824 but less than £10,000.

Entitled employees (age 16 – 75 earning less than £5,824) can also ask to join, however employers do not have to pay contributions.

 

How much must I pay as an employer? 

 

As an employer, you can contribute more than the statutory amount, however the Government has set a guideline for minimum contribution which is designed to help build a habit of savings.

The initial minimum contributions start at 1% of a worker’s “qualifying earnings” and increase to 3% over the next few years and your employees also contribute.

When we refer to “qualifying earnings” , this does not mean all of an employee’s salary, but applies to earnings over a minimum amount (currently £5,824) up to a maximum (currently £42,385). (These figures apply to the 2015/16 tax year and will be reviewed annually by the government)

 

Do employees have to join?

It is law that employees who are eligible are enrolled however each employee has the right to opt- out.  Sensibly, most employees will choose to stay enrolled with opt out rates currently at around 9%.

It should be noted that it is against the law to coerce a worker to opt out, for example offering a pay rise for opting out or pay cut for remaining in the scheme, and employers can be fined by the regulator if they are found to do this.

Who should host my employee pension?

Choosing the right scheme for your employees is an important decision and requires careful thought and consideration. There are a wide range of investment options and should be considered on the risks and merits of each. If you need help and advice on finding a suitable scheme for your employees and implementing auto enrolment pensions, our small business advisors at Newton Magnus can offer helpful consultation without obligation.

For more information about Auto Enrolment pensions – What you need to know as a small business.

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