What is the Auto Enrolment Pension?
In 2012, the last Coalition Government introduced a new form of pension regulation. The new legislation forced every workplace to offer a pension scheme and, crucially, to create a pathway for automatic enrolment for all eligible workers within that organisation. The scheme was launched with large employers in mind back in 2012. However, a change to the legislation has meant that by 2018, all companies will need to offer a workplace pension scheme with automatic enrolment for all eligible staff.
The regulation has a laudable aim – to help more workers save up more money for their retirement. However, to counter the failure of employee sign-up schemes the Government has created an automatic enrolment process. This moves the onus away from the employee to the employer. This is a dramatic shift in responsibility. Workers can opt out, but the process is designed to play into employee deduction laziness. Therein, more people will have access to private pension provision.
What you need to know as an employer?
Automatic enrolment will come into force by January 1st, 2018. This will mean that all full or part-time employees who work in the UK, who are not already in an alternative private pension scheme, are at least 22 years old and earn more than £10,000 (tax year 2017-18) are all eligible for the scheme. However, if an employee doesn’t meet this basic criterion, they can ask to apply, and an employer cannot refuse (and as such must make contributions).
The Government is leveraging the importance of the ‘employer contribution’ against the possible tide of opt-outs. Private pension provision is a singular payment into a pension scheme. However, the workplace pension has a troika of contributions payments that help to make it more generous.
What are the costs involved?
The contribution calculations are set out on the Government website. The basic dynamics of the payment framework are as follows:
- April 2018-March 2019 – 5% of earnings (which is made up of 2.4% of employee contributions, 2% from the employer and 0.6% in the form of tax relief)
- April 2019 and beyond – 8% of earnings (which will be made up of 4% individual employee contributions, 3% from the employer and 1% in tax relief)
However, companies will need to set some funds aside for the setup provision of the auto enrolment system whilst also understanding the minimum contributions that must be paid. This new pension change is a structural re-development of the pension landscape – but it comes at a big cost to employers.
The Pension Regulation (TPR) has outlined the details and has made the case for businesses to understand that if they believe compliance is expensive, non-compliance is even more expensive! Ultimately, the wider responsibility for the auto enrolment process is with the employer – the compliance requirements are therefore employer compliance pressures. The fines for lateness, failure to comply and even using fake exception certificates are massive.
Companies need to understand their compliance perspective and how auto enrolment will impact their entire payroll processes. The Pension Regulation has a library of guidance videos, guides and reports that can help you understand the massive regulatory undertaking that auto-enrolment workplace pension schemes will place on your business.
How can Prestige Business Management help?
Our team of workplace pension auto-enrolment specialists can help you navigate the pitfalls of workplace pension deployment and enrolment. Our team can help SMEs understand the dynamics of compliance and the importance of successful payroll services. Our team can help outline a bespoke pension solution for your exact business needs. Why not call us directly on 0203 773 2927 or email the team at [email protected] for more information?