Under current legislation, all businesses must operate a pension scheme for qualifying employees, with both the employer and employee required to provide minimum contributions.
The implementation of auto-enrolment is being staged over a number of years, depending on the number of employees within the business. The largest employers started in October 2012, with phased introductions continuing until April 2017 for existing employers.
- Those with over 90 employees will start by 1 May 2014 at the latest.
- Those with 50 or more employees will start by 1 April 2015 at the latest.
- Those with under 50 employees will start between 1 June 2015 and 1 April 2017, with the date being determined by their PAYE reference number.
The minimum contribution by the business will start at one percent of the qualifying employees’ wages. This will rise to two percent in October 2017 and three percent in October 2018.
Employees will also start with a one percent contribution, again rising to two percent in October 2017 and four percent in October 2018. The government will also contribute one percent to the scheme.
These minimum payments are calculated on the income earned over the minimum limit of £5,668, up to a maximum of £41,450, with these figures reviewed annually.
Any employees aged between 22 and state pension age, who earn more than the personal income tax allowance threshold (£9,440 for 2013-2014), qualify under auto-enrolment.
Furthermore, employees over 16 and below 22, over state retirement age and under 75, or earning between the minimum limit and the personal allowance, can request to join the scheme. The employer will then have to make contributions, as will the employee.
Eligible employees have to be enrolled, but can then decide they do not wish to remain in the scheme. They will automatically be re-enrolled every three years, making it necessary for them to formally opt out again. Employees will need to complete the necessary paperwork for opting out.
However, it must be their decision; employers cannot force their employees to opt out.
What you need to do now
- Find out when your staging date is.
- Ensure you have the correct information needed for each of your employees.
- Consider how you intend to deal with auto-enrolment – whether to set up, or adapt, an existing pension scheme which complies with the regulations, or to join the NEST default scheme arranged by the government.
- Consider the administration needed to ensure that existing workers and new starters are registered into the scheme, as well as to track those who choose to opt out. The latter will need to be notified every three years so they can decide if they wish to continue to opt out.
- Ensure your payroll system can cope with calculating the amounts to be paid over by both the employer and employee. This will need to be paid over monthly, similar to PAYE.
It is important not to leave things until the last minute, when other businesses will be trying to set up their systems, as this will lead to delays. You will also need to factor in the additional costs to the business and how you will cover these.
At Moore Thompson, we can assist with the preparations for auto-enrolment. We would be happy to discuss your personal requirements with you and help set up a tailored system for the business. Please contact us and we will be happy to discuss this with you.
If you are considering setting up a company scheme, or would like meetings and advice for your staff, MT Financial Management Limited would be happy to discuss this with you and provide a quotation for the costs involved.
Please contact us for more information and guidance.