ANALYSIS
NEWS
04
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THE INVESTOR
PENSIONS
NEXT STAGE FOR AUTOMATIC ENROLMENT
During the next 21 months, more than 750,000 employers will have to offer their
staff the opportunity to join a workplace pension scheme. The next stage of the
government’s automatic enrolment programme will cover businesses with fewer
than 30 employees, which means that even those that employ just one member
of staff (such as a nanny or gardener), will have to start paying into a pension
scheme for them.
Automatic enrolment is designed to encourage everyone to save for their
retirement. The rules mean that all employees aged 22 and over (but younger
than State Pension age) earning more than £10,000 a year must be enrolled
in a pension scheme. While the employee can decide to opt out, they have to be
asked again every three years. Those who are excluded because of their age
or salary level can still decide to opt in and will, in any case, have to be given the
chance to join a scheme when they reach either the qualifying age or the earnings
threshold. It means that employers whose staff do not currently qualify still need
to be aware of the rules.
All employers must make a contribution into these schemes, and the cost will
rise over time. Initial contributions into these schemes are set at 2% in total, of
which 1% has to be paid by the employer. From October 2017 that will rise to
5%, including an employee contribution of at least 3%. The following year that will
increase again to a total of 8%, of which 5% is the employee contribution. Although
some employers will have existing pension arrangements, they may not comply with
the automatic enrolment guidelines, so it is important employers check ahead of time.
The staging, or starting date, for smaller employers depends on their PAYE
reference; this can be checked on the website for The Pensions Regulator, which
also has detailed guidelines for employers on how to set up an automatic enrolment
scheme. Larger employers have been signing up since 2012 and the regulator has
already started issuing fines to companies that have failed to meet the automatic
enrolment deadlines. Detailed preparation is essential to avoid a similar penalty.
Ian Price, divisional director at St. James’s Place, says: ‘In most cases, large and
medium-sized employers have already staged successfully, but processing the
wave of small and micro employers will be very different. Smaller employers are
concentrating on the day-to-day running of their business and are more likely to
want to park automatic enrolment with an expert. Employers should engage with
a professional if they’re at all unsure about what their new duties are, and ensure
they leave themselves plenty of time for the correct arrangements to be put in place.’
