Auto Enrolment Pensions Explained

All companies and businesses that have 50 employees or more should, by now (in 2015), have commenced a “Workplace Pension Scheme”, and enrolled all their qualifying employees in it. The ball is now firmly in the court of smaller businesses – right down to those with just a single employee, who must now take the plunge into these waters if they have not already done so. The system is referred to as “Workplace Pensions automatic enrolment” or, more simply, “auto-enrolment”.

All small businesses with employees that qualify are required to set up a pension scheme. The date for doing this is set, for each business, by the Pensions Regulator, the government officer entrusted with regulating this matter. It can be anywhere from June 2015 to April 2017.

You will have to enrol all employees aged 22 or over and under state pension age, and who also earn more than the monthly or weekly equivalent of £10,000 a year (it was £8105 in 2012 but has since increased). Any other employee can optionally choose to join as well. At every future payroll run you will have to check for anyone who might have reached age 22 or passed the wage threshold.

An excellent guide to the procedures involved in preparing for automatic enrolment is provided by the Pensions Regulator, but here is a brief summary:

1st Step – Your Staging Date

The date by which your business must have a Workplace Pension Scheme in place is called your “staging date”. You need to find out this by going to the Pension Regulator’s site, where you enter your PAYE Reference to obtain the date for your business.

2nd Step – Contacts

Give the Pensions Regulator contact names for them to send information on scheme start-up to – the owner or most senior director or partner and, if different, the staff person responsible for the day to day running of enrolment.

3rd Step – Pension Scheme

By the staging date you must have a suitable pension scheme up and running. If you already have a pension scheme, you still have to find out from your scheme provider if it is suitable for auto-enrolment; if it is not, then you will have to setup a new scheme. You will need to find auto enrolment specialists for this.

4th Step – Payroll

Also by the staging date your payroll software must be ready to perform automatic enrolment, and to make the necessary employer’s and employees’ deductions.

5th Step – Auto-enrolment

You must write to all staff to explain their options – the Regulator’s website provides template letters for this. Even the staff who are not auto-enrolled must be given the optional opportunity to join.

Final Step

Once everything is in place you have to complete an online Declaration of Compliance to confirm to the Regulator that you are ready.

The Benefit

This is now a legal requirement for all employers, and employers that ignore the matter can potentially be fined. The lasting benefit, however, is that we will all reach our future retirement better prepared financially than has been the case for many people in the past. It may seem yet another onerous burden on employers, but no doubt it will soon become just another everyday part of our payroll system. Society, however, as a whole will be better off.

Gary Keeley is the founder of The Workplace Pension Consultancy, which provides advice and consultation for SMEs who are looking to set up auto-enrolment for their staff.