Automatic enrolment is the biggest shake-up of pensions for a generation, and it will result in millions of workers being pushed into saving money for their retirement for the first time. Despite the enormity of the change, many are still in the dark about automatic enrolment. This guide has been designed to let you know the key points and how to prepare for the new regime.
Why is it being introduced? We are all living longer and we are likely to spend more than 20 years in retirement, but we’re not saving enough. The government sees automatic enrolment as the best way to overcome people’s “savings inertia”. As the Department for Work and Pensions (DWP) puts it: “Rather than taking action to save, an employee has to take action not to save.”
Who is affected? Everyone in work aged between 22 and state pension age who earns more than £8,105 a year (this amount will be reviewed each year), and who isn’t already in a workplace pension scheme.
What about other people? Workers who aren’t in that group can opt in, if they wish to. If you’re at least 16 but under 75, earn more than £5,564 a year and ask to be enrolled, your company will have to put you in the scheme and pay a minimum contribution too. Companies will also need to enrol any workers aged 16-74 who earn less than that, and who ask to be put into the scheme, but they don’t need to pay contributions for them.
How much gets paid in? The total minimum contribution will start at 2% of a worker’s gross earnings (of which at least 1% must be paid in by the employer). By October 2018 this minimum will have risen to 8%, made up of at least 3% from the company, up to 4% from the employee, and 1% tax relief. These percentages don’t apply to all of an individual’s salary, but only to what they earn over a minimum (currently £5,564) up to a maximum limit (currently £42,475).
Does everyone have to join immediately? No. All existing employers, including in some cases private individuals who employ a nanny or gardener, must have enrolled their employees by April 2017, but the roll-out is being staggered. The scheme began on 1st October 2012 for the biggest companies: those with more than 120,000 staff. Staging dates have been announced for all employers based upon the number of staff they employ.
What if an employee doesn’t want to join? Workers are free to opt out if they want to. The government hopes that forcing employers to contribute, plus adding tax relief will encourage people to stay in, but it has estimated that several million people may opt out. Some will take the view that they can’t afford it, while others will want to make their own arrangements.
Can employers encourage workers to opt out? Employers are prohibited from offering incentives or perks to encourage staff to opt out. This applies to both existing workers and new recruits and means that, for example, making a job offer or higher salary conditional on not joining the employer’s automatic enrolment scheme, is not allowed.
What happens if a company refuses to enrol its workers into a scheme? Employers who don’t comply with the rules face a range of potential sanctions. Those who ignore the Pensions Regulator’s first request could get a fixed penalty of £400. Employers who “wilfully and persistently” fail to comply, face tougher penalties: £50 a day fines for those with fewer than five staff, rising to £500 a day for those with five to 49 staff, and £10,000 per day for those with more than 500 workers.
We have designed a 3 stage process to help you through automatic enrolment;
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Fact finding & Report We meet with you to gain an understanding of your business and your circumstances.
We already have a pension scheme, are we exempt from the new rules?
We do this by gathering information on your existing arrangements, including things like salary data, staff numbers and the existing benefits package you provide to your employees. The whole process is carried out confidentially and any data obtained is used solely to provide you with our advice and recommendations.
Even if you already offer a pension scheme, you can’t assume there’s nothing you have to do. You’ll still need to check your arrangement complies with all the requirements of the new legislation - and take steps to fill any remaining gaps.
After completing our audit, we will provide you with a written report which will explain exactly what you need to do and when. This will include a cost analysis and identify any operational risks, such as payroll and back office systems. Our report will also include recommendations (where applicable) to reduce the cost of contributing to your employee’s pensions.
What other responsibilities will fall on employers? Agreeing to enrol your employees into a pension scheme is only the start of the process. Making sure you comply fully with the new rules means that you will have to introduce new payroll systems and new staff records. You will have to prove that you advised your staff on the new rules and the options available to them, including their right to opt out. In addition there are requirements to opt staff back into the scheme every 3 years and last but not least, you will have to report your compliance to The Pensions Regulator (TPR) on an ongoing basis.
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Once you have understood and accepted how automatic enrolment will apply to your business, we can move on to assist you in choosing a suitable pension scheme via NEST or any of the other providers in the market. As independent advisers we can help you choose the scheme that is right for you. If you already have a scheme in place, we can help you to make sure that it is compliant with the new rules.
What help is available to cope with new the rules and regulations? On the face of it automatic enrolment can look daunting. However, as group pension specialists, Moore Stephens Financial Services can guide you through every aspect and make sure you are fully compliant with the new pension legislation. Our audit and report service includes the following: •
A full and detailed explanation of automatic enrolment
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An action plan specific to your circumstances
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Qualifying scheme audit to cover existing schemes (where applicable)
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Financial implications with options to mitigate/reduce the cost of contributions
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Pension scheme choices
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Scheme implementation, processing & administration
• Employee communication, presentations and one to one meetings
Choices & Planning an implementation strategy
The next step is deciding on how the new scheme will be implemented, how you will let your employees know what choices they have and how to complete all the paperwork. Again we can help you to plan for this and we can also help with the next stage, i.e. scheme delivery.
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Scheme delivery & Ongoing service The final stage of the process is the setting up of the scheme. This involves letting your employees know exactly what is changing, how it affects them, and what they need to do. We can provide one to one meetings for individual staff members and also look into your IT needs and backoffice procedures, such as payroll and your opt-in/opt-out processes. We will let you know how you go about reporting to The Pensions Regulator (TPR) and, once everything is in place, we will be on hand to help with your pensions into the future. Moore Stephens Financial Services provide all prospective clients with a free initial meeting in order to discuss our services, understand your needs and agree terms. Please contact us by telephone on 01536 462700 or by sending an email to enquiry@msfs.co.uk.
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www.msfs.co.uk This document is provided for information purposes only and does not constitute any form of financial or investment advice. Past performance is not a guide to future investment performance. The value of your investments as well as any income derived from them can fall as well as rise and you could get back less than the amount invested. We believe the information in this brochure to be correct at the time of going to press and is based on our current understanding of legislation and tax allowances which may change in the future. As such changes can’t be foreseen we cannot accept responsibility for any loss accessioned to any person as a result of action or refraining from action of any item herein. Printed and published by Moore Stephens Financial Services (East Midlands) Limited. Authorised and regulated by the Financial Services Authority.
January 2013