There’s no doubt most of us understand the importance of having a good pension pot available. For employees, it is one way to secure their future retirement and ensure they have enough money to live on. In the past, employers could make a choice about whether they offered a workplace pension scheme, but that all changed in 2012 when automatic-enrolment came into effect.
All businesses are now required by law to automatically enrol their eligible employees in a workplace pension. For some time, this has applied to larger companies but now SMEs are being brought into the loop and need to comply with the legislation by 2018 at the latest. Failure to do so could see some businesses fined between £50 and £2,500 a day depending on the number of employees they have.
What is automatic-enrolment?
Basically, it means that your business has the onus to enrol employees (who meet the criteria) onto a workplace pension scheme. If employees want, they can opt out of the scheme but if they don’t you have to put them on it. The criteria for qualifying for a workplace pension are:
- Your employee needs to be classified as a worker and ordinarily work in the UK.
- They need to be between 22 and the age they are eligible to draw their pension.
- They must be earning more than £10,000 a year.
Business contributions is one big issue that many SME owners are concerned about. If your employee is earning less than £486 a month you don’t have to contribute. If they earn over this, you will need to contribute by law.
The Government has set out various staging dates for when certain business types need to have their workplace pension provision in place. To find this date, you will need to put your PAYE reference into the Pension Regulator’s site (note: if you have different PAYE schemes then the one with the most employees will be used to determine the staging date).
How to create a workplace pension for your employees
Once you know your staging date, the next step is to arrange the facility to deliver your workplace pension. You will need to work out the costs to your business of running a pension scheme and who on your list of employees is eligible to receive it. Then you need to find a pension provider who will be able to deliver what you are looking for.
Any pension scheme needs to be viable for you as an employer but it also has to offer a good return for your staff. Getting the balance right between these two factors is vitally important. There will be a difference for staff who are getting on in years and those who might be contributing to the workplace pension for a longer period, say 30 years or so. The former may want a more cautious range of investment options in their pension portfolio while the latter can handle slightly riskier but better gain investments which settle out over a number of years.
Essentially, you are looking for a pension investment that has a low cost to suit you but which produces a good return for your employees.
In addition to these requirements, you are also going to want a pension provider who can help you maintain good governance. Running a pension scheme for your employees is a big responsibility and many smaller businesses don’t have the qualified staff on hand to constantly review delivery and keep everything on track. If this applies to your business, then clearly you need to find a provider who offers this extra level of support.
Explaining to your employees
Automatic Enrolment will mean that your employees will soon see pension contributions going out of their pay packets. Communication is vital at this time so that everyone knows what is going on. You need to inform staff why the pension is being introduced, that they have the chance to opt out and what this means. Some pension providers can also help with the drafting of communications for staff and arrange meetings where questions can be answered. All this needs to be done well in advance of the staging date for your pension scheme.
In fact, the current research shows that most employees are happy to stay enrolled in a pension scheme when offered. That means you need to budget for the long term take up by a majority of your staff and take into account your own contributions if they need to be made. Ideally, you should have everything in place at least 6 months before the start of your scheme.
We are all living longer and the workplace pension is a way to ensure that when we reach retirement we have adequate finances available to live on. For all employers, having a workplace pension is a legal as well as a moral responsibility for our future pensioners.
To find out more, visit the Pension Regulator’s website.