Auto Enrolment…Plan now or feel the pinch!

Auto Enrolment-Plan now or feel the pinch !

The auto enrolment time clock has started.

Auto enrolment is not straightforwardand will catch the unwary and ill-prepared.

Under the scheme all employers must automatically enrol certain members of their workforce into a pension scheme and will have to make contributions into it – initially it’s a minimum of 1% however this will soon rise to 3%.

Auto enrolment is being phased in starting with the largest employers first. The date that you have to comply with the new rules is called your Staging Date. Those with 120,000 or more employees had to auto enrol by 1 October 2012 and as of 1 August 2013 those employing between 2,000 and 2,999 were required to enrol. The staging dates for those employing fewer than 30 employees run between 2015 and 2018. At this point, all will be caught in the net.

To establish your particular staging date visit the Pensions Regulator website here

The employer contribution is based upon an employee’s gross wages over £5,668pa (currently). Again there is a useful calculator on the Pensions Regulator website which indicates how to calculate gross wages for this purpose and the amount of the minimum contribution required. Click here

So what does this mean?

All employers that do not have a pension scheme in place will soon face additional employment costs of 3%. It must be remembered that employees (unless they opt out) will also have to contribute. Employee gross contributions will start at 1% and will rise to 5% so the effect on their disposable income will put additional pressure on the employer to increase wages.

Costs aside, employers are going to have two key decisions to make well in advance of their staging date. The first is to choose a suitable pension scheme. Will this be the governments default option called Nest (National Employment Savings Trust) or will they choose an alternative pension provider. The second decision will be about the administrative burden of complying with auto enrolment. Employers will need to fully understand what’s required and then decide if they have the capacity to administer this themselves or whether they prefer to outsource this.

The message is therefore plan while you have time. Make sure you understand the difference between using the default scheme (NEST) or choosing an alternative. Consider your current payroll arrangements and how the administration of auto enrolment could link to this. And finally, consider the cost implications well in advance for example phasing in the contributions early as part of your pay increase strategy.

Do not leave it too late

In August 2013 figures from the pensions regulator showed that between 400 and 500 larger employers were required to register in that month. At its peak, it’s estimated that up to 98,200 employers with less than 30 people in their PAYE scheme will have a single staging date of 1 April 2017. It is therefore highly likely that there will be a large number of employers all looking for guidance at the last minute.

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