An SMEs guide to auto-enrollment

24th February 2016

According to the Pensions Act of 2008, by 1st April 2017, every business in the UK employing over five people must have implemented auto-enrolment to a pension scheme for their employees. The reason for this is to ensure that at retirement age, everyone working in the UK as an employee has enough saved. With the proportion of the population at pension age increasing, the government wants to ensure that they do not rely on the state pension alone.

Employees may opt out of the pension scheme you choose for them if they do not wish to pay, but the responsibility has now shifted to the employer to set this up for their staff. So, as a small to medium enterprise, you’ll need to start making preparations to implement this change to the law regarding pension payments for your employees.

Auto-Enrolment Staging Dates

Your deadline to implement auto-enrolment for your business depends on the numbers of employees your company had on 1 April 2012. The plan was laid out such that the largest businesses would be required to be the first to implement auto-enrolment, with smaller businesses coming later. The last deadline will be 1st April 2017. See this table to work out exactly when your deadline is. You may face significant fines if you do not meet your deadline (or staging date, as it is also known).

Who Qualifies For Auto-Enrolment?

This is quite simple. Your staff are eligible for auto-enrolment if their annual gross income is over £10,000 and they are aged between 22 and state pension age. If any of your employees fall into this category, it is then your responsibility as an employer to auto-enrol them in a pension scheme. This of course means that even if your employees are earning the minimum wage, you’ll likely be required to enrol them.

How Much To Pay

The minimum amount that must be paid into an employee’s pension scheme under this act is 8% of their gross earnings. At least 3% of this must be paid by you, the employer, with the remaining 5% to be paid by the employee directly from their salary, which your payroll will be responsible for deducting.

You may choose to pay more than 3% as a benefit of employment with you, for example. It is possible that these minimums may increase in the future, so make sure you stay up to date with the most current information.

How To Choose An Auto-Enrolment Scheme

You are somewhat free to choose exactly which scheme you opt for, but whichever one you choose in the end it must:

  • give you the ability to enrol your employees without their explicit consent
  • allow for the possibility for employees who are not auto-enrolled (because they do not meet the minimum criteria) to join voluntarily
  • be tax registered in the UK
  • make it possible for both employer and employee to pay in the minimum contributions

There are several schemes and companies that have been set up specifically to help companies to meet their staging date and provide options for the pension scheme that best meets your needs. Some examples are the Smart Pension, the National Employment Savings Trust and The People’s Pension.

Your responsibilities as an employer

To summarise, your responsibilities are to:

  • choose, set up and register a scheme for your employees
  • ensure that all existing eligible employees are auto-enrolled, as well as an new employees who also meet the criteria
  • give those employees that do not qualify for auto-enrolment the option to sign up if they so choose
  • manage the system of auto-enrolment for new employees, as well as the opting-out process
  • keep records to show that you have fulfilled your requirements

Don’t delay

Since the final staging dates will be coming up in just over a year, if you haven’t already done so, right now is an excellent time to find out the staging date for auto-enrolment that applies for your business. Then take start to take the necessary steps to ensure that you’ll meet it, otherwise, you may be slapped with a hefty fine.

Need advice or assistance? Then get in touch with AK Tax today.