Technology start-ups value rewarding their staff beyond basic pay but often pensions have been left out of remuneration packages, especially in the early stages. However, with the new auto-enrolment pension rules everyone will now have to consider pensions in their employee planning.
What is Auto Enrolment?
It is new legislation stating that employers need to provide employees with access to a workplace pension that meets certain minimum standards.
The employer has to make contributions and ensure that all eligible employees, those aged between 22 and their State Pension Age, working in the UK and earning more than £10K per year, are automatically enrolled. An employee can decide to opt out of the pension scheme but they must still first be automatically enrolled. The employer cannot be seen to encourage employees to opt out.
Non-compliance is not an option and there are initial fixed penalties and daily levies which could run into the thousands.
How much will it cost me?
Employers must contribute a minimum amount to an employee’s pension based on their salary as below:
From inception to 30th September 2017 1%
From 1st October 2017 2%
From 1st October 2018 3%
Employees must also contribute certain minimum amounts and there will be set up costs and ongoing monthly administration costs to consider.
It is possible for an employer to recoup some of the costs of auto enrolment by using Salary Exchange as a contribution method. Whilst this is more complicated and will increase monthly administration, the employee’s salary is reduced by the amount of the pension contribution and as such, no employer national insurance is paid on this amount. This is only likely to be suitable for the larger employers who would benefit from using a life company group pension plan as the DIY solutions do not support this contribution method.
When do I need to start planning for it?
Each employer has been assigned a Staging Date by which time these changes will have to be in place. We suggest you start planning 12 months before this date as you need to provide the Pensions Regulator with a primary point of contact around this time.
Furthermore, most pension providers need notice of at least 6 months for a scheme to be considered. If you have an existing pension scheme you will need to check that it is a qualifying scheme.
What do I do next?
You can research the best scheme for your company with a great starting point being the Essential Guide to Automatic Enrolment produced by The Pensions Regulator.
The government workplace pension provider is NEST and represents the default choice. Auto Enrolment focused companies exist such as the People’s Pension which has a long-standing history and Smart Pension which is a new entry into the market place.
Or you can consider using an independent financial adviser to research and implement a suitable scheme.
How can ihorizon help?
We are aware of your staging date so get in touch to check this with us.
You can nominate ihorizon as your secondary contact and then we can run the monthly reporting alongside payroll, managing the pension contributions and helping you meet your obligations.
Once you have made a decision on how you wish to proceed, we can go over any extra fees associated with the administration.