By Daniel Harrison, Managing Partner, True Potential Investments
Small businesses around the UK are required to provide their employees with a pension scheme under the government’s auto-enrolment (AE) scheme.
A study carried out by True Potential reveals that two thirds of savers have yet to be enrolled into an AE scheme. Early preparation will ensure that when the time comes, businesses experience minimum disruption and management of the scheme does not take up more time than is needed. Here are my top tips to make sure everything runs smoothly:
Find out your staging date
It’s important to know the date on which your auto-enrolment duties start – this is known as your staging date. There are several tasks that need to be completed before the scheme comes into effect for your business. Giving yourself plenty of time will allow you to prepare thoroughly, plan your finances and find the right pension scheme for your business and staff. Visit the Pensions Regulator website and enter your PAYE code to confirm your staging date.
Work out who’s eligible and who isn’t
In advance of your staging date you’ll need to review your staff and work out who needs to be automatically enrolled. Workers must be auto enrolled if they earn over £10,000, are between the age of 22 and the State Pension age and if they work in the UK.
If you currently have a pension supplier, check that they qualify and their terms
It’s important to check a couple of things at this point. If you currently have a pension provider you’ll need to make sure that they comply with the new regulations, including offering a fund within the Government’s set price cap of 0.75 per cent.
Businesses should also check the costs that their providers are charging. Some providers will charge employers fees but there are some, including Tue Potential, who have no admin fees or ongoing charges for using their system. Another consideration for small businesses is the ease of the implementation process. Unlike larger businesses, many small businesses will not have teams of accountants to deal with the auto-enrolment process, so it is important to choose a provider that makes implementation and ongoing admin as fast and easy as possible.
Auto enrolment should also be viewed as a way to attract and retain employees so choosing the right provider is key. If you can offer your employees technology that allows them to supplement their pension with other investments, such as ISAs, to allow them to be better prepared for their future, along with tracking and topping up their pension wherever and whenever they choose, you can demonstrate that you are giving your employees more.
Communicate with your employees
Our research shows that on average, 10 per cent of employees choose to opt-out of auto-enrolment. Employees must be educated and kept informed about the scheme, whilst being encouraged to take advantage of the opportunity that it presents. Workers must be aware of who is eligible and their right to opt out if they wish to. An easy way to communicate this to staff is through presentations or emails and letters which give the most important dates and statistics, whilst signposting staff to where they can get more information from.
It’s important too that employees realise that, although an auto-enrolment scheme is a good start, they will need to invest further outside of their workplace scheme. Our research shows that people in the UK believe that they will need £23,000 for a comfortable retirement. Relying solely on an auto-enrolment scheme – as 33 per cent of people currently are - will see them fall well short of this figure.
Enrol eligible workers
Eligible employees must be enrolled onto the scheme and informed of the relevant staging dates and the contribution that they will be required to make. From October 2017, the total minimum contribution to a pension scheme will be five per cent, with two per cent coming from the employer and the remaining coming from the employee and tax relief. From October 2018, overall contribution will rise to eight per cent, with three per cent coming from the employer.
Register with The Pensions Regulator and keep records
You’ll need to register your enrolment solution at www.thepensionsregulator.gov.uk and thereafter keep certain records, such as all payments made into the scheme for up to six years.
Select your default fund choices
One of the final steps is to select the default fund for your scheme. For small businesses this can be a minefield with so many different funds available, so in many cases it is appropriate to seek expert advice.
Make contributions to your workers’ pensions
Since its introduction in 2012, auto enrolment has been implemented into businesses throughout the UK in order to provide eligible workers with work-based pensions. There is no option, it’s obligatory and so this new legislation affects everyone. Failing to comply will risk enforcement action, with penalty notices and court action possible if non-compliance continues.