Welcome to the second part of this 2-part blog post. If you haven’t read through the first part, which goes through the basic fundamentals about Auto-enrolment in general, you can do so by clicking here.
Kindly Note: The value of pensions and investment can go down as well as up and you may not get back as much as you put in. Auto enrolment is not regulated by the Financial Conduct Authority.
How much will an Auto-enrolment scheme cost for my business?
So this is what it all boils down to. How much will Auto Enrolment cost? Well, it’s no surprise that the main costs will be your contribution to the pensions of the eligible staff.
The Government has set minimum contribution requirements to ensure each worker has adequate pension provision and in an attempt to lessen the impact on employers, the contribution levels are being introduced on a phased basis and can be found below:
• Before October 2017 | 1%
• Oct 2017 – Sep 2018 | 2%
• From October 2018 | 3%
The corresponding rates for worker contribution are 1%, 3% and 5%.
It’s important to note that these are the minimum rates, (you may wish to reward your staff with more) and that the rate applies to “qualifying earnings”. For the 2018/2019 tax year, this is earnings between £6,032 and £46,350. (These statistics can be found on the GOV.uk Website)
The pension regulator provides a handy tool to enable you to calculate your contributions, you can view it by clicking here:
Outside of your contributions, there are likely to be other costs associated with implementing and maintaining automatic enrolment. You may need to bring in external help to set up the process, you may need to take on an additional member of staff to manage it and if you are managing it in-house, you’ll need to make sure you have the right software in place that can handle the requirements of auto enrolment.
Many modern payroll systems will have this, but if yours doesn’t or you don’t have any at all, here are some question to ask payroll software providers:
Can it identify whether your staff need to auto-enrol?
Can it calculate pension contributions?
Can it handle opt-in and joining?
Can it handle opt outs and refunds?
Can it support you in generating and issuing letters to your staff?
If you’re selecting new software, it’s important to ensure that it’s compatible with your existing systems too.
With all these additional changes, it’s a good idea to take on third party advice, such as from an accountant or a financial adviser. Feel free to contact us here at Credius, we’re more than willing to guide you throughout all the steps. You can contact us by clicking here.
Which is the best Auto-enrolment scheme for my business?
Choosing an Auto Enrolment scheme can be a real headache and it’s important to stress that not all schemes are created equally.
Whilst it may be possible for you as an employer to make the selection alone, we would strongly recommend using an independent financial adviser. They’ll have access to a wide range of products and can tally your needs with the right scheme for you.
Many organisations might simply see Auto-Enrolment as a burden but making the right scheme choice, may lessen some of this burden as well as have a very positive impact on your employees so it’s important to do your research.
Some good questions to consider when selecting a scheme are:
• Are communication costs covered (the scheme provider should report on a regular basis to each enrolled employee on their pension status)
• Is there a setup fee applied to small employers?
• Do they have simple requirements and on-boarding process?
• What are the ongoing costs?
• Will employees have to make a series of complex investment choices to save for their retirement?
Most employers are likely to use a defined contribution (DC) scheme for automatic enrolment. This is largely because these types of schemes do not promise the member a guaranteed size of pension at retirement. For you the employer, this means you’re only committed to paying a finite amount of contributions to the scheme in respect of eligible workers.
Obviously the core thing to consider when choosing a pension scheme for your staff is that it meets the criteria set out in the regulations, but it’s important to also choose a good quality scheme that provides value for money and protects your staff’s retirement savings and this is where a financial adviser will be worth his/her weight in gold with hundreds of schemes at their fingertips and an in depth knowledge of the sector in general.
The pension regulator provides a handy tool for you to double your scheme meets the regulations, you can find it by
Communicating the change to your workforce is a vital part (and a legal requirement) of the Auto Enrolment plan and should not be taken lightly. The more communication you have, the more likely you are to uncover any unforeseen problems early on in the process and the less likely you are to receive kick back from staff members.
A good idea is to begin communication early on in the process and on an incremental basis, starting with a high-level ‘heads up’ message and as time goes on, educating your employees so that they understand what the effects are to them and what category of employment they fit into with regards to Auto Enrolment.
So what do you need to communicate?
Well for Eligible jobholders, they need to know that they will be automatically enrolled into a pension scheme. They will need to know what automatic enrolment means for them. For example, a small amount of money will now be diverted from their salary into a pension pot. When this will happen and how it will work.
They’ll need to be advised that they can opt-out (and if they choose, in certain circumstances opt back in).
If their pension savings are in a contract-based DC scheme or personal pension, they’ll need to know the terms and conditions of the arrangement and where they can find out more information about pensions and retirement saving.
Non-eligible jobholders and entitled workers will receive the same information as eligible jobholders except they’ll need to know that they have the right to ask to join instead of being automatically enrolled.
And lastly, if you have employees who are already members of an existing pension scheme, you’ll need to confirm to them that their current pension scheme meets the criteria for automatic enrolment and you’ll need to give them details of their pension scheme again, even if it has been supplied to them in the past.
Your employees will need to have access to all of this information before they are enrolled to ensure they can make an informed decision about staying in the pension scheme or opting out.
To learn more about your requirements and to explore scheme options contact Credius today on 020 7562 5858 or email email@example.com.
What is the procedure for postponing Auto Enrolment? Why should you consider doing so?
So we said earlier that you can only move your staging date forward and not backwards and this is true. However you can postpone Auto enrolment for individuals (or groups of individuals) for up to 3 months in certain circumstances.
The period of time you can put off automatically enrolling an employee is known as your “Postponement Period”.
Why might you want to do that?
A classic example would be for a new starter. If this person started part way through the month, it would mean that their first month’s income (which would only be a fraction of their normal month’s income) might not qualify them for auto-enrolment.
You would then, by law, have to send them notification that they are not eligible for Auto-enrolment. Confusingly though, the next month when they receive their full month’s income, they will be eligible and you’ll have to send out a further communication stating that they are now eligible.
It’s an admin headache and confusing for the new starter so postponing auto enrolment for them until their first full month is a very reasonable thing to do.
Another example might be when you employ temporary staff that you know will not be with you for longer than 3 months. You can choose to postpone their Auto-enrolment for 3 months and ultimately not need to enroll them at all.
The date to which you postpone the enrolment of an employee is known as the deferral date. On the deferral date you assess the employee to see if he or she is an eligible jobholder. If they are eligible you will have to automatically enrol the person into pension saving.
Postponement can also be used company-wide at your staging date if you require more time to integrate the requirements of automatic enrolment into your existing processes. It is also useful if you wish to align the calculation of auto enrolment to be in line with your “pay day”.
A key point to note with postponement is that each time you postpone an employee’s enrolment you have to issue a notice to each person affected stating your actions. Employees can still overturn this however, as they have the right to save into a pension during the period of postponement and you are duty bound as an employer to pay contributions as if you had not postponed their start date.
The overall Auto-enrolment action plan
We’ve given you a hefty amount of information so far in this 2 part blog post and so we thought you might like a useful timeline below to guide you through the process. Enjoy!
Go to the Pensions regulator Website by clicking here and check your staging date:
9-12 months before being ‘Auto-Enrolment’ ready
• Read the Pension Regulators Guides to fully understand your responsibilities as an organisation
• Create your project team across Payroll, Finance, HR and I.T.
• Provide 2 points of contact to the Pensions Regulator
• Speak to your pension provider where you have an existing arrangement.
• Speak to an Independent Financial Adviser to full uncover your scheme options
6-9 months before being ‘Auto-Enrolment’ ready
• Review your internal software – does it need to change?
• Choose an Auto Enrolment Scheme
• Begin initial high level communication with workers to advise them of the upcoming changes
3-6 months before being ‘Auto-Enrolment’ ready
• Complete a worker assessment and format your worker data
• Build automatic enrolment costs into your financial model
• Decide on a level of contributions you want to make
• Plan how it will be managed (internally / externally)
0-3 months before being ‘Auto-Enrolment’ ready
• Implement new software and train relevant staff
• Review worker data for categorisation and measurement of qualifying earnings
• Communication in depth with staff
Onward after being ‘Auto-Enrolment’ ready
• Enrol staff
• Manage opt-outs
• Complete a declaration of compliance
• Monitor ages and earnings
• Maintain records
What are your ongoing responsibilities in running the auto-enrolment scheme for your business?
We’ve concluded our 2 part blog post, but your work certainly isn’t finished just yet!
So you’ve assessed your workforce, chosen a scheme, communicated it effectively and rolled it out to your workforce – what next?
Well, as an employer I’m afraid the buck doesn’t stop there. It’s your legal duty to maintain accurate records to show that you have complied with regulations. Keeping accurate records also makes good business sense because it can help you to defend yourself against a dispute with an employee and avoid costly litigation.
So what data must you hold and for how long?
By law, there are two different types of records that an employer must keep. The first is records about jobholders and workers and includes:
• National Insurance number (where one exists)
• Date of birth
• Gross qualifying earnings in each relevant pay reference period
• The contributions payable in each relevant pay reference period by an employer to the scheme, and the amount payable. This includes contributions due on the employer’s behalf and deductions made from earnings
• The date contributions were paid to the scheme
• Any opt-out documentation
Records must also be kept about the pension scheme itself, and this would include:
• Pension scheme reference
• Scheme name and address
• Any evidence showing that a scheme meets the regulatory criteria
All Auto enrolment records need to be kept for a minimum of 6 years, except for opt-out documentation which only needs to be kept for 4.
We’d like to say that this should serve only as a simple guide and for a full list of requirements you will need to visit this link.
In addition to maintaining accurate data, do be vigilant in monitoring staff ages and earnings. If you currently employ people under 22 or pay workers under £10,000 you’ll need to ensure they are automatically enrolled once they reach the qualifying age or earnings threshold.
Similarly, you’ll also need to revisit all employees that have chosen to opt out every 3 years and automatically enrol them again.
So that’s the end of our blog sequence on Auto Enrolment. We hope you have find it useful and informative.
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If you have not yet spoken to us about your options, drop us a call today on 020 7562 5858 or email firstname.lastname@example.org. We look forward to hearing from you shortly.