The government currently estimates that around seven million people in the UK are not saving enough for their retirement. People are also living longer so the size of their pension fund needs to be greater to fund this.
The government have realised they may not be able to afford to keep state pensions at their current level in the longer term as pensions are paid out of current taxation. The government has already taken some action on this in increasing the age at which the state pension can be accessed.
All of these factors have forced the government to introduce Auto Enrolment where the employer will have to introduce a workplace pension scheme and both the employer and employee will be forced to contribute into this.
The DWP estimates that the additional contributions alone will cost in the region of £3.2 billion. Ignoring these changes will not be an option as firms who fail to comply, could be fine up to £10,000 per day!!!
This guide is designed to give you an overview of Auto-enrolment, advise you of your obligations and help you through this process.
Auto Enrolment – The Basics
Auto Enrolment represents a massive change in workplace pensions. Previously Employees could decide if they wanted to join a workplace pension and you the Employer were not obliged to pay any contributions on their behalf.
Now, Employers will need to automatically join everyone earning over the “earnings trigger” (set at £10,000 for the 14/15 tax year) into a pension and Employers for the first time will be required to make minimum contributions on their behalf.
These new rules will probably mean extra contribution and administration costs to you so it is vital that you start planning for this as early as you can.
Burying you head in the sand is not an option as The Pension Regulator have stated that Employers who fail to comply with the regulations will be issued with a £400 fixed penalty followed by penalties of between £50 and £10,000 per day depending on the number of staff and the scale of the offence.
Who do I need to Auto Enrol?
Not everyone in your workforce will be eligible to join and you will need to look at your workforce and identify the people you need to auto-enrol. Auto Enrolment is required for anyone who:
Works (or ordinarily works) in the UK under a contract of employment.
Is aged between 22 and state pension age and earns over the earnings trigger (£10,000 for 2014/15). Overtime, bonuses, commission, statutory sick, maternity, paternity and adoption pay all count towards this figure.
Workers do have the option to opt out. However they have to make an active decision to do so. You have to repeat the auto enrolment process every three years for those who have opted out.
Who does I not need to Auto Enrol?
The rules mean the majority of your workforce will have to be auto enrolled. However there are some exceptions as follows:
These include the following
Workers aged between 16 and 22
Workers aged between State Pension Age and 75
Earning between £5,772 and £10,000 (for 2014/15)
Although they do not need to be auto enrolled, you must however provide them with information and give them the right to opt in. If they opt in then you must pay an employer contribution on their behalf. If a worker subsequently becomes eligible (i.e. turns 22) you will need to auto enrol them if they have not already opted in.
People who earn less than £5,772 per annum are entitled to join, however here is no onus on you to contribute on their behalf. If their earnings increase over this earnings trigger, then they must be enrolled.
If someone has a spike in their earnings (for instance, because of a bonus or overtime) will need to be auto enrolled if it takes them over the weekly or monthly equivalent of the earnings trigger.
When do I need to start auto-enrolling?
This depends on your staging date. This will be based on the number of employees on your payroll as at 5th April 2012 and your PAYE reference number. You can find out your staging date by visiting the Pensions Regulator website and inputting your PAYE number.
However they will automatically write out to you to remind you of this date 12 months in advance and send you a reminder 3 months before.
You may be able to postpone auto enrolment until early 2018 for members who are eligible to join a “Defined Benefit” scheme but have chosen not to join yet.
Below is a guide to staging dates depending on the number of Employees in your company.
What will I have to pay?
You will have to pay a minimum based on a percentage of your employees qualifying earnings. These are earnings based between the lower and upper limits of the qualifying earnings band (currently £5,772 and £41,865 for 2014/15).
This includes wages, commission, bonus and overtime as well as statutory sick, maternity, paternity and adoption pay. A summary of the amounts required based on qualifying earnings are shown below.
There are three other alternatives to using “qualifying earnings “. In general, the more generous the definition of pensionable salary, the lower the minimum qualifying contributions.
Total Earnings: This definition can be used if all earnings are pensionable.
Pensionable salary is at least 85% of total earnings.
What type of scheme should I choose?
It is important to understand that just because you already have a company pension plan in place that this will automatically cover your obligations under auto enrolment.
This is because you existing scheme may not qualify, your existing provider may not be prepared to take on your additional workers or it might not offer the features you need.
Other alternative providers are listed below.
Workers Pension Trust
There are advantages and disadvantages to all these options and the key is to select the option that best suits your needs.
How can MTS Wealth Management help you?
Our role is to assist you though the process from an initial assessment of your requirements through to implementation and beyond. We offer a full range of services covering all aspects of the auto enrolment process including.
Carrying out an initial assessment of your workforce to establish which employee falls into which category.
Undertake a review of your existing scheme to ensure it is compliant.
Design a Qualifying Scheme and undertake a review of the scheme providers and recommending alternative provider.
Liase between your payroll, Employer and provider to ensure data is provided in the correct basis.
Manage the process of communicating with your employees.
Managing the Opt Out process.
Implementation of the scheme.
Provision of ongoing support and governance for assessment to be carried out at each pay reference period to check foe new eligible employees.
Ensure recordkeeping in the correct manner.
Assist in completing returns to the Pensions Regulator.
Provision of individual financial advice to Employees if required.
We also offer a range of other employee benefits including
Group Life Assurance.
Group Income Protection.
Private Medical Insurance.
Director/ Shareholder Protection.
Director & Key Employee Retirement Planning.
Automatic enrolment action plan
Nominate point of contact – Register contact with The Pensions Regulator
Establish your staging date
Assess your workforce<Insert table>
Review your current pension arrangementsCriteria:a) Minimum contribution basis
b) Joining process
c) Definition of pensionable salary
d) Communication to employees
e) Investment options – default fund
Choose a qualifying pension scheme
Communicate the changes to all your workers
Automatically enrol your eligible job holders
Register with the pension regulator and keep records