What does new pension scheme mean for your business?
Over recent months Theo Paphitis and Nick Hewer have been popping up regularly during ad breaks to tell us all that Auto Enrolment into workplace pensions has begun.
Rachel Finch of Burton Sweet Accountants looks at what these changes actually mean for you and your business.
State pension under increasing pressure
Over the past decade or so the State Pension has been put under an increasing pressure as the average age in the UK rises, pressure which will reach a critical level in a few decades.
As a result, government have introduced a new work based pension scheme.
Unlike schemes introduced by previous governments this one is different, the new scheme has auto-enrolment, this means that rather than opting in, employees will have to opt out every year if they do not want to join.
What does it mean for employees and employers?
We have detailed some of the implications for employees and employers of the new scheme:
The date that the scheme will come into effect will depend upon the number of employees in your company on 1 April 2012.
Whilst the scheme came into existence in October 2012, businesses with fewer than 150 employees will be looking at a start date of May 2014 or later.
To identify the likely start date visit http://www.thepensionsregulator.gov.uk/employers/staging-date-timeline.aspx
The Pension Regulator will notify each business between 6 and 12 months before their staging date.
Select a pension plan
The employer will need to select a suitable pension scheme to use for auto-enrolment.
If your company does not have a qualifying existing scheme you can use the National Employment Savings Trust (NEST).
It is worth mentioning that it is possible to set up different schemes for different categories (including seniority) of employees.
All eligible workers must be enrolled
All eligible workers; aged between 22 and state pension age who work, or normally work, in the UK with earnings above £9,440 per year must be automatically enrolled.
For these purposes earnings, and your contributions, is not solely your annual salary, but also includes bonuses, commission, overtime, sick pay and maternity/paternity pay
Employees have the right to opt out of the scheme; however employers can be fined up to £10,000 per day for encouraging employees to do so.
Staff that are not eligible for auto enrolment (those that do not meet the criteria above) must be informed of the scheme and given the choice to opt in.
Keep a record
It is imperative that the employer keeps detailed records and every three years (from the staging date) the auto enrolment process is repeated to include individuals that have previously opted out.
Employees earnings, dates of birth and opt-out dates will need to be recorded (electronic filing is satisfactory). Records must be kept for 6 years unless the employee is opting out, in which case records must be retained for 4 years.
The level of minimum contributions will be phased in during a transitional periods up to 1 October 2017, after which the minimum employer contribution will be 3% and the minimum employee contribution will be 5%.
For more information on what the new work placed pension scheme will mean to you and your business, we recommend visiting the Pension Regulators website (www.thepensionsregulator.gov.uk)