A week does not pass without it being used to commemorate or highlight something! Well, this week (15th to 17th September at least) it is Pensions Awareness Week.
Pensions are a serious business. Not only do they underpin how most workers enjoy retirement; but they are also hard earned throughout careers, through deductions from payroll and employer contributions from you every month.
As such, there are complex rules surrounding them. The rules most pertinent to you as an SME employer are likely to be the auto-enrolment rules.
What is auto-enrolment?
You probably already know what auto-enrolment is; it has been in place since October 2012. Rather than requiring workers to actively choose to save into a pension, the central idea is that they would need to actively choose not to.
This subtle shift has been a remarkable success. When the government conducted a ten-year review in 2022 they found that, in real terms, the total yearly workplace pension contributions of all private sector eligible employees had increased from £41.5 billion in 2012 to £62.3 billion in 2021.
Employer responsibilities under auto-enrolment
So, in the spirit of Pensions Awareness Week let’s do a recap of your main responsibilities under auto-enrolment.
Setting up and enrolling staff
You will obviously need to select a pension scheme to begin with. Make sure you choose one which is compliant with auto-enrolment and appropriate for your workforce.
The idea is that most staff are eligible to be enrolled, with the criteria being they:
- Are classed as a worker
- Are aged between 22 and the state pension age
- Earn at least £10,000 a year
- Ordinarily work in the UK
There are some technical reasons which may preclude people. These include them explicitly opting out, or advising you that they have protection from the pensions lifetime allowance.
In addition to the above bullet points, should an employee not qualify to be automatically enrolled, say they are younger than age 22, they can ask to be enrolled and you must honour that. If they are a low earner you will not have to pay contributions. These low earner thresholds are them earning less than £520 a month, £120 a week or £480 over four weeks.
How much is paid in auto-enrolment
The minimum total contribution for auto enrolment is 8% of qualifying earnings. It’s typically split as employer 3% and employee 5%, the 5% often includes tax relief if the scheme uses ‘relief at source’. You or they can contribute more at either party’s own discretion.
The minimum employer and employee contributions must be paid in by the 22nd of each month. Auto-enrolment usually starts on day one of employment (with some caveats and exceptions which a specialist can advise you on if necessary).
There can be tax advantages if you arrange contributions through a salary sacrifice scheme, but it is always worth talking this through with an expert.
Communicating with staff about auto-enrolment
It is important to keep your employees informed about their pension. When they join it, this means writing to let them know the date they joined, the type of pension it is and who administers it, the contribution rates for you and them, and how they can opt out, should they wish.
Pitfalls to avoid with auto-enrolment
As you can imagine, auto-enrolment is governed with strict rules to ensure it is not undermined. You will get into trouble with The Pensions Regulator if you encourage or force staff to opt out of the scheme, discriminate against anyone if they stay in it, or close a scheme without automatically opting eligible workers into a new one.
If employees opt out of the pension scheme, you must opt them back in at least every three years, informing them that you are doing so.
Choose an expert partner
With so much to get right, and high stakes if you get it wrong, companies often choose to outsource auto-enrolment responsibilities to an expert. This means that you can breathe easy knowing that it is all being done correctly and that when opt ins and opt outs arise, they are taken care of.
We have an expert and cost-effective solution for delivering auto-enrolment to SME businesses. If you would like to find out more, please get in touch.
