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Ask anyone involved in the pensions industry what retailers should do about the UK’s new pension laws and they have the same advice: act no
w, because the clock is ticking.
New legislation that aims to address the fact that too few of us are saving for retirement started coming into play in October 2012 in the form of automatic enrolment of staff into pension schemes. It will eventually require all employees aged 22 or over who earn at least £9,440 a year to be signed up to schemes which employers will also contribute to, with contribution rates rising between now and October 2018.
Admittedly, for the vast majority of small employers, automatic enrolment is a fair way off; they can expect their start date to be summer 2015 at the earliest. But organisations such as the Pensions Regulator warn that acting early is essential nonetheless.
Its executive director of automatic enrolment, Charles Counsell says: “Leaving preparations too late can lead to non-compliance and this can come at a cost. Things will go much more smoothly for employers who plan ahead and take a step-by-step approach.”
TAS Accounting Services, which specialises in working with smaller businesses, agrees. Its sales manager Neil Glover advises that taking early steps – such as identifying key dates, getting staff records in order and getting familiar with details of the new legislation and ongoing responsibilities – will ease the process for retailers.
“I don’t think smaller businesses are aware of how this will affect their businesses, and they don’t know what it actually means to their day-to-day running. I don’t know of any retailers that have implemented auto enrolment pensions. But proactive small businesses will start to do so soon,” he says.
And while both organisations advise that employers should have pensions and software advisors in place at least six months before the key “staging date” – which gives many firms up to three years grace – they also agree that retailers need to act now if further help is needed.
“The big employee benefit companies and insurers are more than happy to deal with larger firms as these will be profitable in the long term, but they are starting to turn down smaller companies as they do not offer the same level of profitability,” says Mr Glover.
With this in mind, we asked the Pensions Regulator and TAS to help you start your preparations by guiding you through the essentials of the law and the steps you need to take.
The essential questions answered
What is automatic enrolment?
Automatic enrolment will roll out fully by 2018. Every employer must automatically set up and enrol certain workers into a qualifying workplace pension scheme and make contributions towards it.Minimum employer contribution levels, which can be offset against business tax, have been set and will be phased in and increased over time, starting at 1% and rising to 3% by the end of 2018. Employees will have to make contributions too, again with minimum contribution levels.
Does it apply to me?
Yes, if you employ staff aged over 22 who you pay more than £9,440 per year. You will need a pension scheme and to communicate information about automatic enrolment to all of your workforce.
What and when is my staging date?
The new law will apply to your business from your staging date. You must adhere to this, although you can elect to bring it forward – with agreement from your pension provider. The vast majority of small employers will not need to automatically enrol their workers until summer 2015 at the earliest, but you should check your staging date now. It is determined by the number of persons in your PAYE scheme, based on data held by the regulator from HMRC on 1 April 2012. You do not have to automatically enrol your staff on this exact date, however, and can choose to postpone for up to three months.
What do I need to have done by my staging date?
By your staging date, you should have checked your payroll software will be suitable for automatic enrolment. Even if you only employ a handful of staff, automating will help simplify the ongoing duties and help you avoid errors. You can use the period before your staging date to test your system and ensure you understand how it works. If someone else – such as your pension provider or accountant – is carrying out this process for you, it is still important that you familiarise yourself with the process.
Why should I comply?
The government is very serious about pension reform and has introduced a series of fixed fines for organisations that do not comply, ranging from £50 up to £10,000 per day, depending on numbers of employees. Also, if you don’t comply, your workers will be missing out on the pension savings they are due.
Do I still have to comply if my workers don’t want to be in a pension?
Yes. Workers can choose to opt out after being automatically enrolled, and if they do so, you should remove them from the scheme and refund their contribution. Since the summer of 2012 it has been illegal to do anything to induce your workers to opt out or cease their membership of the qualifying pension scheme.
What to do next
Identify your staging date
You can find it by entering your PAYE reference number into the tool on the Pension Regulator’s website.
Make an initial assessment of your workforce
Before your staging date, make sure you have the appropriate pension arrangements in place for each category of employee. Employees will be categorised as “eligible jobholders”, “non-eligible jobholders” or “entitled workers”. This is determined by age and earnings. There are different processes for each category of employee that will need to be followed.
Plan for auto-enrolment
Once the assessment is complete and appropriate pension schemes are in place, you will need to plan for the auto-enrolment date and the period shortly after. Any eligible jobholders not already in a qualifying scheme will need to be enrolled into one, with membership being effective from the auto-enrolment date. Learn how and when you need to do this, what happens after automatic enrolment and what your ongoing responsibilities will be. You also need to plan for any software upgrades and when you will have agreed on a suitable scheme with a pension provider. The Pension Regulator’s website has a timeline planner which will help you to do this.
Get your records in orderYou will need to be able to provide evidence that auto-enrolment has been actioned at the right time and managed properly. Start to make sure your staff and payroll records are in order, with the appropriate pension contribution deductions scheduled. They will need to be up to date and accurate at your staging date. Have you got the right dates of birth and national insurance numbers for your staff and do you have their latest contact details?Ask for advice and help nowBig employee benefit companies and insurers are happy to deal with larger firms, but are starting to turn down smaller companies.
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