Back at the beginning of the 20th century, when the first old-age pension was introduced in the UK, there were 10 people of working age for every person drawing their retirement income. Today, that ratio is 3:1 and it’s set to drop even further to 2:1 by 2050.
Given that our pensions are covered by the current working population, it’s hardly surprising that the government has, for many years, been worrying about the long-term sustainability of state provision and urging us all to supplement our pension with private plans.
Pension Act 2008
In 2012, we moved from gentle cajoling to a more formal system, with the implementation of the terms of the Pensions Act 2008, better known as auto enrolment. Pension auto enrolment requires every organisation to set up and contribute to a pension for their employees. It has been trailed heavily on radio and through TV commercials and has even seen the introduction of ‘Workie’ the workplace pensions' monster to help grab some attention.
Small Businesses Need to Plan Ahead
Small business owners and managers can’t afford to ignore auto enrolment. It is a complex minefield and with penalties for non- compliance it’s certainly worthwhile investing the time to get things right from the beginning. The recommendation from experts is to allow6 months to a year of planning before your own ‘go-live’ date, known as a staging date. Registrations are expected to peak in the fourth quarter of tax year 2016/17, but you can check your own particular staging date very quickly by visiting The Pension Regulator’s website at www.thepensionsregulator.gov.uk
What are the complications for employers?
Well, first of all, you’ll need to assess your employees to see who is deemed an ‘eligible worker’ under the terms of the legislation. Very few employers will have a static workforce so this will be an ongoing process, with salary changes, employees joining, leaving and going above the age thresholds, all will need to be monitored to capture any category changes.
The next thing is to put in place not just a workplace pension scheme, but one that will work for auto enrolment. Many will expect this to be the same thing however; it is not that straight forward. Existing schemes in place may well meet the qualifying pension scheme criteria but may not be willing or able (due to technology) to assist with the auto enrolment duties. At the moment many pension providers are introducing additional costs such as set-up fees or ongoing monthly charges so getting some advice and selecting the right provider could save many businesses money in the long run.
There is ongoing consultation regarding partners of LLP’s and company directors so it will be important to keep up to date with any changes by doing research or having advisors who will provide summary updates when required.
Communication and Records
After that, there’s a process of communicating with your workforce, enrolling those who should be part of the scheme and registering with The Pensions Regulator. Naturally, there are records to keep as you manage auto enrolment and you’ll need to ensure that your contributions are made in a timely fashion. Penalties for non-compliance with the regulations range from £50 a day to £10,000, so there’s a strong incentive for businesses of all sizes to ensure they’re on board.
Talk to your accountant
Software solutions may well play an important part in helping you to manage the pension auto enrolment process, but they’re not the complete solution. It’s important you fully understand the implications, both in terms of the administration and also the employer contributions that you will be required to make. So talk to your professional accountancy advisers about exactly how the new system impacts on your business and the level of support they’re able to offer you. An early discussion may pay real dividends in the long term.