Pensions Auto-Enrolment Q&A
You may have already heard about Auto-Enrolment Pensions.
You may have started receiving letters from the Pensions Regulator. With this change in running a PAYE system hitting small business in the next year to eighteen months we give a Question and Answer on Auto-Enrolment.
Does it affect me?
If you employ PAYE staff then Auto-Enrolment applies to you. However if you are a sole Director on PAYE or one of a group of Directors less than two of whom are on a contract then it may not. In this situation you need to send an email to the regulator the details of which can be found here: Instructions on what do if you are sole Director etc.
When will I need to deal with it?
The deadline by which you need to have the mechanisms in place is called your 'Staging Date' and Auto-Enrolment has been staged according to the number of employees you have. Employers with more than 50 employees have already started on Auto-Enrolment. Any employers with less than 50 employees will have staging dates between June 2015 and Jan 2017. To find out your staging date you need to enter your PAYE number into this Pensions Regulator Tool.
What if I miss the deadline?
The Pensions Regulator is trying to strike a balance between working with employers to help them comply with their duties and forcing employers through penalties. Here is what they say on enforcement. Ultimately fines start at a flat £400 with penalties escalating at £50/day for small employers thereafter!
What do I need to do to get started?
The following sets out the basics of what needs to be done:
Find out your Staging Date
Appoint a Point of Contact
Check which staff members to enrol
Work out your Costs
Choose and set up a Pension Scheme
Choose and set up an IT solution
Write to Staff about Auto-Enrolment
Assess Staff and inform your Pension Provider
Complete a Declaration to the Pensions Regulator
More information on this can be found in Pensions Regulator guidance.
Do all staff members need to be registered on the scheme?
No. For anyone earning less than £112/week or £486/month you must provide a pension scheme if they ask for one but you don't have to make contributions as an employer. Anyone earning between £486 and £833 per month (£112 - £192 per week) has a right to opt in - .i.e. must be paid contributions if they request. Above that salary, they must be added to the scheme.
What will my Costs be?
Auto-Enrolment is about your employees paying into a pension through their payroll. The amount you the employer will be obliged to pay starts at 1% of salary for anyone registered on Auto-Enrolment before 30/9/17, rising to 2% from 1/10/17 - 30/9/18 and 3% thereafter. Employee contribitions start at 1% and rise to 3% and 5% respectively. Employees registered on a scheme can opt of the scheme but you cannot oblige them to or even encourage them to.
Apart from the Pensions Contributions themselves the cost of administering the scheme and IT will need to be factored in.
How do I choose a Pension Provider?
There are hundreds of different Pension providers on offer and the skill of your pension fund manager will affect the savings your staff end up with at retirement. The Pension Provider your choose must fit certain criteria to comply with the Auto-Enrolment scheme so it is important to check that they do (this linked tool is provided).
We recommend to contact an IFA to help you with this decision. Some companies may struggle to find a pension provider willing to register a scheme for them especially in the next 2 years when there will be a rush to sign up with a pension scheme, however the government's NEST has been set up as a back stop with a duty to accept any PAYE scheme wishing to set up a pension scheme.
What IT do I need?
At time of writing there is some debate as to what IT will be provided by HMRC or Pensions Regulator to help streamline the reporting and admin around Auto-Enrolment. However our best guess is that whilst tools will be provided, neither HMRC nor Pensions Regulator will provide an integrated solution.
Therefore many businesses will want to find a software provider that will also handle Auto-Enrolment. If you already have PAYE software we recommend to check that it will be 'Auto-Enrolment' compliant.
Xero users will be pleased to know the new PAYE integration handles Auto-Enrolment.
What and when do I need to inform staff?
Within 6 weeks of your staging date you must write to each member of staff who is either being automatically enrolled to let them know what deductions will be being made, contributions passed to their pension and their rights vis-a-vis otping out. You must also wirte to any staff member who is not being automatically enrolled letting them know about their rights to opt in.
Letter templates can be downloaded from this linked Pensions Regulator page.
Once they have been written to and responses collected you are in a position to inform the Pension Scheme provider who will be joining a pension.
What happens then?
Once the scheme is set up, contributions need to be made and records kept of contributions, any opt-outs. Employers also need to keep an eye on staff members who go over the relevant earnings thresholds and become eligible for Auto-Enrolment.
The enrolment process is then repeated every three years.
Can you help?
Co- is offering an integrated Auto-Enrolment service for all clients who run payroll services through us on Xero. If you would like to discuss delegating Auto-Enrolment duties to Co- send an email to Damion Viney for more information.
