The latest auto-enrollment deadline for SMEs employing under 30 staff members passed in June. Adam Bexson, auto-enrolment consultant at Barnett Waddingham blogs for SME about what businesses need to know in order to comply with the new regulations.
The UK has a pensions crisis. Too many people are not saving enough for their retirement, resulting in a pensions “black hole” where too many people rely on the State pension alone. The Government’s response was to focus on ensuring that people save, and the most straightforward way to do this seemed simple - place a duty on employers to ensure that all workers are put into a workplace pension scheme automatically. And so auto-enrolment was born, and starting from October 2012 employers of all sizes (beginning with the largest first) have had to begin the process of enrolling eligible staff in a pension scheme and pay contributions to that pension Over the coming months many SMEs will now be legally required to auto-enrol their staff, but what do you need to know?
Who does auto-enrolment apply to?
Simply put, auto-enrolment will eventually apply to all UK employers (this makes it significantly different from previous workplace pensions legislation). We have already seen auto-enrolment impacting larger employers, such as the supermarkets and banks. We are now seeing the impact on SMEs, before we eventually see the impact on micro-employers (those with between one and four employees).
Do I need to auto-enrol all employees?
This is where it starts to get complicated! The legislation focuses on “workers”. Workers can include those who are on self-employed contracts – it is important to check who will be a worker and who will not be. In order for employers to understand whether an individual is a worker or not, The Pension Regulator provides a list of considerations. The list includes the level of control an employer has over an individual (for example, does the employer control the number of hours an individual works, and/or require them to work on their premises) and the financial side of things as well (for example, does the worker bear all of the significant financial risks in carrying out the work).
Once we understand if an individual is a worker, they need to be split into three groups, one of those being individuals who need to be auto-enrolled. This group includes those workers who are between 22 and State Pension Age (SPA), with earnings over £10,000 per annum, or £833 per month (other figures exist for other payment frequencies).
Which pension scheme should I use?
You have a lot of freedom over which pension scheme you can use – there are a number of different schemes which can be used. One key thing to remember is that this may not include your existing scheme! This comes as a surprise for some employers who make very generous contributions – it is not just the amount that is paid in that needs to be taken into account. So remember, not all pension schemes are qualifying, so if you are considering using your existing scheme for auto-enrolment, the key thing to do first is to ask your pension provider whether this will be possible.
What happens if I do not comply?
This is a simple question to answer – the Pensions Regulator has various powers including the ability to issue fines. These can go into the thousands, but it is important to point out that their focus is very much on helping employers comply with the legislation.
The Pensions Regulator has already used their powers, and issued fines (including “escalating penalty notices, which increase every day of non-compliance) and ordered remedial action where appropriate.