Top tips to help you sail through auto enrolment
Contributor: Will Wynne, co-founder and Managing Director of Smart Pension
Around 250,000 small businesses are set to reach their staging date over the next three months, according to figures from The Pensions Regulator.
Add to that any that have delayed their date by up to three months – and more that are in the process of reviewing their current arrangements and/or going through cyclical re-enrolment – and that’s a hefty number of small business founders dealing with something they’ve got no or very little experience of.
To add to that, start-ups founded after October 2017 are now legally bound to offer a pension to eligible employees straight away, no staging date required. It’s the new normal.
The good news is, it’s not as hard as you think.
So how do you get going, how do you find the best and most cost-effective scheme – what do you need to do to avoid a hefty fine?
Workplace pension provider Smart Pension has written a nifty and free ebook called Auto Enrolment – The Essential Guide for Small and Medium Businesses. It describes how costs and time can be dramatically cut by following these easy steps. It’s been downloaded more than 5,000 times and has a five star Google rating. You can download it here.
When do I need to offer a pension?
First things first. If you are haven’t staged already or don’t know your staging date, contact the Pensions Regulator or you can look it up here. Start-ups now have the ability to delay enrolling staff by up to three months if there’s a good reason. Signing up to the Government Gateway is essential. You will eventually have to use this central website to show you have completed auto enrolment. This last point is worth remembering if you want to avoid a fine.
How do I choose a provider?
These are the things you need to look out for:
– A good place to start looking is the The Pensions Regulator (TPR) list on its website. It displays schemes that have passed its rigourous Master Trust Assurance Scheme test, it is the gold standard for master trust quality.
– Look for a scheme that is free to employers. There are firms that will charge a sign-up fee and ongoing fee, while others, including Smart Pension, are totally free to the employer.
– Again, make sure the provider has a Defaqto rating. This is an independent audit and another sign of quality. Smart Pension has a 5 star rating, you should find this on the company website when you are looking around.
– Ensure funds are overseen by the Financial Conduct Authority (FCA).
– Make sure the whole sign up process is fast. A lot of firms make you fill in reams of laborious paperwork – this is just not necessary, it can be done in minutes for a small firm or start-up.
– Payroll compatibility. Once up-and-running, auto enrolment will simply happen automatically every week or month and plugs in to your existing accounting and payroll software. We call this a ‘silent running solution’. Make sure the scheme you use is capable of linking to the accounting software and/or payroll software you use.
– Transparent administration fees. Again, small business founders are no experts in pensions and the finer points. In the big wide world there is a lot of variation in charges to employees to look out for and not all of them are easy to spot. See comparison tables here.
– Guaranteed acceptance. Not all firms accept all sizes of company and employee pay brackets. Check the firm you have chosen will accept you from the outset before you get too far down the line.
Who is eligible for a pension?
The criteria is, any member of staff aged between 22 up to state pension age AND earn over £10,000 a year (or £833 a month or £192 a week) MUST be automatically enrolled into a pension scheme. Other staff that aren’t automatically eligible but can ask include:
– Those aged between 16 and 74 and with earnings of more than £5,824 but below the £10,000 auto enrolment threshold
– Those aged between 16 and 21 or between state pension age and 74 and with earnings above £10,000 a year
Comms
This is easy to get wrong – the rules on assessment are fiddly and subject to change and the onus is on the employer. Choose a provider that assesses staff and generates the letters and communications automatically and for free so you are compliant with the Regulator’s requirements. Failure to comply with these seemingly simple elements could lead to a £400 fine.
How to plan for the extra costs
If you’re handling auto enrolment yourself, you can easily save the costs of advice. According to TPR, advice can cost anything between £200 to £1,000. However, handling the ongoing costs mean will mean deciding how to fund the ongoing contribution costs on gross qualifying earnings. At the moment this is 1%, but this will go up to 2% from April 2018 and 3% from April 2019. It may be you have to budget for this through lower pay rises or in some cases, reduced salary (salary sacrifice), or simply view it as an investment in your workforce. Up to you.
Declaration of compliance
A Declaration of Compliance must be completed and submitted to The Pensions Regulator within five months of the staging date. It’s an online form and can be submitted through the Government Gateway, the centralised online registration site for all government services. This applies even if you have set up a scheme and all your staff have opted out. If you don’t, you will be fined £400. Remember this.
Ongoing responsibility
Once everything is in place, there is still a responsibility on the employer to monitor things going forward. These include:
– Checking that staff ages and incomes in case they become eligible later – and offering them a pension if they do.
– Managing requests to join, opt out of or to leave the pension scheme.
– Keep good records
– Cyclical re-enrolment. This means eligible staff must be enrolled again and those that opted out, offered the chance to join.