Back at the beginning of the 20th century, when the first old-age pension was introduced in the UK, there were 10 people of working age for every person drawing their retirement income. Today, that ratio is 3:1 and it’s set to drop still further to 2:1 by 2050. Given that our pensions are covered by the current working population, it’s hardly surprising that government has – for many years – been worrying about the long-term sustainability of state provision and urging us all to supplement our pension with private plans.
In 2012, we moved from gentle cajoling to a more formal system, with the implementation of the terms of the Pension Act 2008. Auto-enrolment requires every organisation to set up and contribute to a pension for their employees and has been trailed heavily through TV commercials. The three millionth worker was signed up in March 2014 at West Ham United football club.
The system is being phased in up until 2018, giving smaller employers greater time to adapt. But the message from accountants is that even micro businesses now need to focus on the challenges that the legislation poses.
Owners and managers can’t afford to stick their heads in the sand and pretend that the transition to auto-enrolment will be plain sailing. It’s certainly considerably more complex than, say, HMRC’s Real Time Information scheme for reporting PAYE. The recommendation from experts is usually to allow a year of planning before your own ‘go-live’ date, known as the staging date. Registrations are expected to peak in the fourth quarter of tax year 2016/7, but you can check your own particular staging date very quickly by visiting The Pension Regulator’s website at www.thepensionsregulator.gov.uk
What are the complications for employers? Well, first of all, you’ll need to assess your employees to see who counts as an ‘eligible worker’ under the terms of the legislation. (This will probably be an ongoing process, as members of staff leave and others join.)
The next thing is to identify a qualifying pension scheme. The People’s Pension is one of the key players in the market, along with Danish firm NOW: Pensions. Some group deals might be available through other parties too. But the government – recognising that many providers may not be interested in a scheme with fixed criteria including a charge cap of 0.75% – has also created the National Employment Savings Trust (NEST) as a backstop. Even if you choose this option though, the onus is on you, as an employer, to sign up.
After that, there’s a process of communicating with your workforce, enrolling those who should be part of the scheme and registering with The Pensions Regulator. Naturally, there are records to keep as you manage auto enrolment and you’ll need to ensure that your contributions are made in a timely fashion. Penalties for non-compliance with the regulations range from £50 a day to £10,000, so there’s a strong incentive for businesses of all sizes to ensure they’re on board.
There’s a hidden twist to the new arrangements too. Some people may be eligible to be part of the new pension, but elect to opt out.
Software solutions may well play an important part in helping you to manage the auto-enrolment process, but they’re not the complete solution. It’s important you fully understand the implications, both in terms of the administration and also the employer contribution that you will be required to make. So talk to your professional accountancy advisers about exactly how the new system impacts on your business and the level of support they’re able to offer you. An early discussion may pay real dividends in the long term.
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