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Financial planningFor businesses

Pension reform

By June 19, 2012February 12th, 2019No Comments

Auto enrolment has become a buzz word in the pension’s world. It is bandied around in the press, pension and employment journals and seminars but what exactly does it mean?

Auto enrolment will affect all employers. For some this will not be until 2015 or beyond but larger employers will be caught up from October of this year.

All employers will now know when their staging date or staging time band is. This is the date that an employer has to comply with auto enrolment and it is determined by the number of employees in their PAYE scheme at 1 April 2012.

For employers with more than one PAYE scheme their staging date will be determined by their largest scheme. However, this does not apply to groups of companies.

If you are a member of a group and each company has distinct contracts of employment and their own PAYE scheme, each employer within the group will have their own staging date.

An employer can elect to bring forward their staging date. This may be to coincide with a year end to ease administration; however a staging date cannot be extended.

In practical terms, what does auto enrolment mean for employers?

Mention the word auto enrolment and, for many, contribution levels and NEST springs to mind. Whilst these will need to be considered, in reality, these are not the immediate headache of auto enrolment.

The minimum contribution of 8% on band of earnings of between £5,564 and £42,475 does not come into effect until October 2018. The minimum contribution required will be 2% of band of earnings up to October 2017 increasing to 5% before it reaches 8% in 2018.

On the basis that most employers have annual pay reviews, this gives around 5 pay reviews to phase minimum contributions in.

The immediate challenge for employers will be auto enrolment itself. The implications of this are regularly overlooked but the huge administration burden and hidden costs auto enrolment will create; employers ignore this at your peril!

Larger employers, in getting themselves ready for auto enrolment later this year have woken up to the fact that there is an extended definition of an employee. For one employer this has resulted in an additional 1000 eligible workers that will have to be auto enrolled to their scheme.

Employers will have to establish which pension scheme they wish to auto enrol into, there will then have to be default funds set up and the rules of the scheme will have to be established to permit auto enrolment.

Contracts of employment will have to be amended to permit auto enrolment.

Employers will need to invest in new systems and procedures to manage the auto enrolment process, opt outs and opt ins. Auto enrolment means enrolling employees to a pension scheme on a date prescribed by legislation without any requirement for the employee to provide a signature or give any information or input on contribution levels or fund choice. This calls for robust, well documented systems and procedures to demonstrate that the employer has fulfilled these obligations. Anything less than this could result in fines and penalties for non compliance.

In addition, employers will be working against an increased media attention on auto enrolment that undoubtedly will focus on the horror stories of auto enrolment, disturbing many employees. Communication around the organisation is therefore crucial to manage disruption and anxiety caused by negative press.

The majority of employers we work with employ between 50 to 250 employees and therefore fall into the staging time band April 2014 to April 2015. This gives them around 2 years to get ready for auto enrolment.

We are working with a number of them on their project plans to auto enrolment, identifying the issues specific to them, working with them to resolve these, to establish their systems and procedures to manage the auto enrolment, opt out and opt in process and supporting them on their communications around their organisation.

If you have any questions regarding your own staging dates, or would like to talk to us about creating a project plan for your company, please do not hesitate to get in touch.