"Master Accounting have been processing the payroll for House of Vantage for several years. When we received our letter from the Pensions’ Regulator, informing us of our staging date, we immediately contacted Mark at Master Accounting who willingly came in to discuss the auto enrolment pension scheme to the senior management team.

By explaining all aspects of the scheme and providing us with the necessary documentation it allowed us to understand its full implications. He then came in again and spoke to all the production team on the various shifts, providing documentation and explaining the full implications of the auto enrolment, answering many questions asked by the staff. We had no hesitation in using Master Accounting to set up our auto enrolment pension scheme to ensure our company was compliant. The set-up fee was extremely reasonable and the process was easy and painless for us."

Thomas Mann - House of Vantage

Background

For many years, the British Government has recognised that individuals have not been saving enough for their retirement and that the basic state pension cannot be relied upon to maintain a reasonable standard of living. Following the publication of the Welfare Reform and Pensions Act 1999, Stakeholder Pensions were introduced on 1st April 2001. These pension schemes were designed to be simpler and cheaper than traditional pension schemes at the time and were intended to encourage lower/moderate wage earners to save for their pension.

On 8th October 2001, it became law that all employers with more than 5 employees should offer their employees access to a stakeholder pension. However, these early attempts to encourage more to save for their pension have failed. In fact, in 2013 only 35% of the workforce was in an occupational pension scheme - the lowest for 60 years.

The government realised that it was no good making it voluntary to join a pension scheme and that legislation needed to be introduced that compelled individuals to enrol in one. Therefore, in October 2012, the Auto Enrolment Pension scheme was introduced. This was legalisation that required employers to automatically enrol their employees into a qualifying pension scheme. The scheme was to be introduced progressively over the next 6 years, starting with the largest employers first.

When Will Your Business Be Affected?

The date when a business is required to have an auto enrolment pension scheme in place is called the Staging Date. To find out when your Staging Date is, simply click on our link to the Pension Regulator’s website. Enter in your PAYE reference number and you will be told when your Staging Date is.

http://www.thepensionsregulator.gov.uk/employers/staging-date.aspx

The Pension Regulator has forecast that, in the next tax year (starting 6th April 2017) more than a million businesses with 50 or less employees will have to have an Auto Enrolment Pension Scheme in place. If you haven’t been informed yet and your business falls into that category, we strongly advise that you take a look now.

Which Employees Will Be Affected and When?

All current employees at the Staging Date will need to be assessed. Some will automatically be enrolled and others can voluntarily be enrolled. In the government’s infinite wisdom, the assessment process and when employees need to be assessed is unduly complicated. The guideline produced by The Pension Regulator for just assessing your workforce is nearly 60 pages long and that doesn’t deal with how much contribution should be deducted and how much the employer has to pay.

These are the 3 categories that an employee, once assessed, would fall into:

Eligible jobholder – automatically enrolled, pays contributions and has contributions paid by employer

  • Works in the UK
  • Aged 22 to state pension age
  • Qualifying earnings (2016/17 £5,824 per annum) above the earnings trigger (2016/17 £10,000 per annum)

Non-eligible jobholder – not automatically enrolled but can ask to join pension scheme, pays contributions and has contributions paid by employer

  • Works in the UK
  • Aged 16 to 21 or state pension age to 74
  • Qualifying earnings (2016/17 £5,824 per annum) above the earnings trigger (2016/17 £10,000 per annum)

Or

  • Works in the UK
  • Aged 16 to 74
  • Qualifying earnings (2016/17 £5,824 per annum) below the earnings trigger (2016/17 £10,000 per annum)

Entitled worker - not automatically enrolled but can ask to join pension scheme, pays contributions but no contributions paid by employer

  • Works in the UK
  • Aged 16 to 74
  • Non qualifying earnings (2016/17 below £5,772 per annum)

Once an eligible jobholder is enrolled, they can opt out within one month and have their and their employer’s contributions refunded. After that, they can stop paying contributions but any contributions the employee or employer has made will remain in the pension until the employee is at least 55.

All non-eligible jobholders or entitled workers are continually assessed each time they are paid and, if they then become eligible jobholders (due to age or earnings), they will be automatically enrolled.

What are the Levels of contributions?

Minimum contributions made by employers will increase gradually over the coming years as indicated below:

DateEmployeeEmployerTotal
October 2012 to September 20171%
1%2%
October 2017 to September 20183%2%5%
From October 20185%3%8%

The important thing is that the total figure is met and that the minimum employer figure is met. This means that the employer can contribute more and the employee less.

Who Will Provide the Pension Scheme?

Many of the major pension companies are providing qualifying pension schemes for auto-enrolment. They all will be charging for them and, in the future, some are threatening not to provide schemes for small employers. The government has set up a specific pension scheme called the National Employment Savings Trust (NEST) which is free of charge.

Employers can choose to set up and administer their auto enrolment scheme themselves or use a third party (pension advisor, accountant, financial advisor) to set up the scheme and administer it for them. However, some of these are very expensive.

If the employer already has a company pension scheme, these can be used too, provided they fulfil the requirements of auto enrolment.

Conclusion

In our opinion, the idea behind auto enrolment is, in theory, sound. It’s clear that many individuals will be heading towards financial difficulty in their later years if they don’t start saving. However, in practice, auto enrolment is overly complicated and a burden on businesses, particularly on small businesses. Due to recent changes in pension legislation where pension pots become available to individuals as cash from the age of 55, auto enrolment is an ideal way to save for the future and receive good returns for the employees, as employers contribute as well. For the pension industry (both providers and advisors) this has been a shot in the arm and they are taking full advantage of the legislation by making high charges to employers.

But what, if any, are the benefits to business? The government maintains that employees would value an employer more when they provide a pension scheme but, as this is now compulsory, that’s hardly a selling point. The other argument the government makes is that, because employers cannot force employees to retire when they reach retirement age, the fact that they would now have an additional pension would make it more likely that employees wouldn’t want to continue working into their late sixties and seventies. Well, the future will reveal that to be the case or not.

However, whether auto enrolment works or not, it will have a major impact on all employers, small or large, and those employers who haven’t started to plan for the change will need to start doing so now.

Find out your Auto-Enrolment Pension Staging Date

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Call us now on 01858 513903 or email us at OFFICE@MASTERACCOUNTING.CO.UK for a friendly, no-obligation chat about your needs.