The Automatic Solution?

Elaine Cromwell FCCA - Thomson Cooper Accountants

By Elaine Cromwell

Back at the beginning of the 20th century, when the first state pension was introduced in the UK, there were 10 people of working age for every person drawing their retirement income. Today, that ratio is 3:1 and it’s set to drop still further to 2:1 by 2050.

Given that our pensions are covered by the current working population, it’s hardly surprising that government has – for many years – been worrying about the long-term sustainability of state provision and urging us all to supplement our pension with private plans.

In 2012, we moved from gentle cajoling to a more formal system, with the implementation of the terms of the Pension Act 2008. Auto-enrolment requires every organisation to set up and contribute to a pension for their employees. The system is being phased in up until 2018, giving smaller employers greater time to adapt.

Owners and managers can’t afford to stick their heads in the sand and pretend that the transition to auto-enrolment is plain sailing. It’s certainly considerably more complex than, say, HMRC’s Real Time Information for reporting PAYE. The recommendation is to allow a year of planning before your ‘go-live’ date, known as the staging date. You can check your own particular staging date by visiting The Pension Regulator’s website at www.thepensionsregulator.gov.uk

What are the complications for employers? First of all, you’ll need to assess your employees to see who counts as an ‘eligible worker’. (This will be an ongoing process, as members of staff leave and others join.)

The next thing is to identify a qualifying pension scheme. For smaller businesses, this may not be straightforward. The government however, recognising that many providers may not be interested in a scheme with fixed criteria including a charge cap of 0.75%, has created the National Employment Savings Trust (NEST) as a backstop. Even if you choose this option though, the onus is on you, as an employer, to sign up.

After that, there’s a process of communicating with your workforce, enrolling those who should be part of the scheme and registering with The Pensions Regulator. There are records to keep and you’ll need to ensure that your contributions are made in a timely fashion. Penalties for non-compliance range from £50 a day to £10,000, so there’s a strong incentive for businesses of all sizes to ensure they’re on board.

There’s a twist to the new arrangements too. Some people may be eligible to be part of the new pension, but elect to opt out while others may be entitled to join even if you are not compelled to auto enrol them. Employers will need systems in place to handle such requests.

 Software solutions may well play an important part in helping you to manage the auto-enrolment process, but they’re not the complete solution. It’s important you fully understand the implications, both in terms of the administration and also the employer contribution that you will be required to make. 

Automatic Enrolment