On the first of October 2012 the UK saw one of the biggest changes to workplace pensions in the last 100 years become law, impacting employers and workers all over Britain. Since that day thousands of employers across the UK have been required to automatically enrol their eligible workers into a workplace pension and make regular contributions. Next year another 45,000 employers will need to do the same - and you could be one of them.
These reforms have already affected large employers and are being rolled out to all employers in the UK over the next couple of years. Once the reforms have been fully implemented some 11 million people working for around 1.2 million employers will have been automatically enrolled.
So it’s a big change.
Many of the employers yet to be affected will have had little experience of pensions. Our research tells us that about 75% of small and micro employers do not currently offer a pension to their staff, so this is likely to be unchartered territory for the majority of employers staging next year.
So where do businesses start?
A good starting point is to understand your ‘staging date’ and work back from that. Your staging date is the date by which you need to comply with the duties and is based on the number of employees on your pay-as-you-earn (PAYE) scheme. You can find out your staging date on The Pensions Regulator’s website using its staging date calculator (see Resources) along with other guidance on the rules. You’ll need to have your PAYE reference (or references) to hand to find out your staging date.
Who do businesses need to enrol?
You will need to automatically enrol all eligible workers who are not already in a qualifying scheme. An eligible worker is:
- Aged between 22 and the state pension age.
- Working in the UK.
- Earning above £10,000.
Other types of workers can ask to be enrolled and you may need to make contributions for them too.
Assessing your workforce is one of the first steps you’ll need to take. You’ll also need to consider what scheme you’ll use to meet the automatic enrolment requirements.
If you already offer a workplace pension scheme, don’t fall into the trap of assuming that your existing pension provider will be able to help all of your workers. Start a conversation with them early on to see what they can do. The National Employment Savings Trust (NEST), which is a not-for-profit executive non-departmental public body sponsored by the Department for Work and Pensions, ensures that all employers have access to suitable, low-charge pension provision to meet their new duty to enrol all eligible workers into a workplace pension automatically. NEST has a public service obligation to be open to any employer which means that it can work with every employer of any size or structure to help them meet their duties, and won’t turn you away.
A bit daunting?
If that all sounds a bit overwhelming don’t despair. There’s lots of advice and guidance available.
As mentioned, you can find out more at The Pension Regulator’s website. There’s also information on NEST’s site for employers, (see Resources) explaining what you need to do to get set-up and running with us, along with communication materials and guides you can download for free.
How much do I have to contribute?
Minimum contributions start at 2% of qualifying earnings, of which the employer must contribute 1%. They’ll then rise gradually over the next few years to a total minimum contribution of 8%, of which employers will have to put in a minimum of 3%.
Qualifying earnings is the band of earnings used to calculate minimum contributions. For the 2014/15 tax year this band is between £5,772 and £41,865 a year, so minimum contributions are calculated on a worker’s gross annual earnings that fall within this band. These figures will be reviewed each year by the government.
What do I need to tell my workers?
Your employees will need to be told about the changes in writing, either by letter or email. The information you need to tell your workers is set out in legislation and includes details of the pension scheme you use and the contributions that will be made for your staff, as well as where they can go for more information. NEST has letter templates you can use, both to meet your legal requirements and to help colleagues understand how the changes will affect them.
As automatic enrolment continues to be implemented around the country, you may find your workers coming to you with questions about when they might be affected and what your plans are. NEST has a suite of communication tools for you to use, available free of charge, on the NEST website to help you inform your workforce.
Pensions are often seen as confusing and research suggests many workers lack confidence about workplace pensions, which may mean more questions for you as an employer. If you communicate ahead of the changes, in clear language, you’re likely to reduce the number of queries you get. NEST is dedicated to plain language communications to make this is as easy as possible for savers and employers, many of whom will be enrolling their workers for the first time.
How long does it take to prepare?
If your staging date is over a year away it can be tempting to push it to the bottom of your ‘to do’ list. However, make sure you give yourself enough time to meet the compliance requirements.
As well as assessing your workforce and choosing a provider, you’ll need to decide on your contribution levels for your workers, or different groups of workers. You’ll also need to ensure your payroll systems, if you have them, can manage pension payments every pay period.
Making automatic enrolment easy
If you decide that you want to stick to what you’re good at - running your practice – then you may decide to enlist the help of an expert. There are plenty of intermediaries, including advisers, accountants and payroll specialists, ready to help employers through their new duties. Some are helping with setting up and others are offering a full end-to-end service, including setup and ongoing maintenance and administration. So if you decide you’d like help, it can be tailored to your needs.
The delegated access functionality enables employers to choose the most appropriate people, both inside and outside of their organisation, to manage their scheme for them. There’s no limit to how many delegates you can have and at all times you have complete control over what level of access you want to give them.
An employer might want one or more people in their payroll or accounts department, or their payroll provider for example, to be in charge of sending contribution information and payments to NEST every payroll cycle. They may also want their financial adviser or accountant to help them prepare and set up, including the assessment of their workers. Their adviser, accountant or bookkeeper could also do the ongoing administration; managing enrolments and worker opt-outs. They can do all of this using NEST Connect.
Automatic enrolment has to be made as easy as possible for employers and the organisations that support them. That’s why NEST is built to be flexible and work around you and your business, so you can get the level of help and support you want from the people you want it from. l
The Pensions Regulator staging date calculator
NEST for Employers