A guide to auto-enrolment pensions for small employers
In this blog I want to address a major issue that is currently affecting or about to affect all small business across the UK who have employees. That topic is Auto enrolment pensions. At Woods Russell I am constantly being asked about auto enrolment pensions, and although there is a lot of information out there about the specifics I often find clients are unaware of the step by step process they must follow to get it right. For that reason, I thought I would put together this quick blog to give you a step by step guide of the process you have to go through as a small company when facing auto enrolment.
As always I welcome your comments and questions, and my details can be found on our website www.woodsrussell.co.uk.
By the end of this blog you will hopefully have a clear idea of the overarching mechanics of auto enrolment. This is a higher level look at the process and compliance you need to go through and it does not look at the amounts you need to pay or how to asses employees in detail. I will be blogging about this at a later date. The most important thing to take away, if you are a small business owner is that auto enrolment is more of a regulatory burden than a financial one and this guide is meant to help you with the regulatory side of the problem.
Stage 1 – One year before your staging date
At this point you are probably completely unaware that auto enrolment pensions exist, however help is on hand. About one year before your staging date the pensions regulator will write to you giving you a bit of information about what is going on and saying that you need to get ready for auto enrolment, at this point you need to do three things:
1) Make a note of the letter reference number in the top right hand corner of the letter.
2)Register two points of contact e.g. yourself and your accountant. This can be done easily by following the prompts on the pension regulators website: http://www.thepensionsregulator.gov.uk/being-a-point-of-contact.aspx
3)Speak to your accountant and let them know the pension regulator has you on their radar.
Your accountant should be able to give you the basic information and should be able to tell you if auto-enrolment is not relevant to you e.g. you are a single director/owner company, then you can tell the pensions regulator that auto-enrolment is not relevant to your circumstances and make sure you have no further duties for three years. If you have no further duties, then your auto enrolment journey stops here but if you do have employees to enrol you must move onto stage 2.
Stage 2 – At least one month before your staging date
You should aim to get your pension scheme sorted at least one month before your staging date so that it is ready to take payments from your business once your staging date passes. The pension regulator recommends doing this much earlier but in my experience clients have been able to set up a scheme fairly quickly which is why I have put this one month before. It is however important that you do get a scheme up and running before your staging date even if employees have told you they want to opt out, this is because you need to go through the process of enrolling and then opting out if you have employees to auto enrol.
There are many options out there but the best for a small business in my opinion is the government backed NEST pension. This is because the NEST pension is free to use and it has been set up for the purposes of small business who may not be able to afford the more expensive ‘bells and whistles’ options that private pension providers can offer.
The NEST pension can be set up online by going to their website. Don’t forget to add your accountant or tax advisor as a delegate as they will need this to help you with your auto enrolment pensions.
Stage 3 – On your staging date
On the first pay date that is past or on your staging date you must auto-enrol those employees who should be auto-enrolled (I will go into more details on which employees must be auto enrolled and how much you need to pay them in a later blog). This means that you need to deduct the amount they need to pay to the pension provider and calculate the amounts you need to pay the pension scheme.
Your accountant or whoever runs your payroll should be providing you with reports to upload to the pension scheme you use to tell them of these amounts, or if they are a delegate they should be taking care of this whole process for you. In my experience, it meshes quite comfortably with the payroll and the whole process should appear seamless for you the client.
Please note that you do not make payments to the pension regulator directly but to the scheme you have set up in stage 2. If it is a NEST pension scheme, then they will set up a direct debit with you to take the amounts out of your bank account once they have been reported.
Stage 4 – Within 6 weeks of your staging date
Strangely, you do not actually have to write to your employees until after your staging date, although it is good practise to inform your employees about auto-enrolment beforehand. You must inform them of their circumstances within 6 weeks of the staging date and to be honest if employees are looking at their payslips they should probably be wondering why amounts are being deducted from them by now. Your letter to them should include and give the details of how they opt out or opt in. Remember you are not allowed to coax your employees into opting out so be careful here.
A good tip here is to look on the pension regulator website. They provide letter templates for free which you can easily download and tailor to your needs.
An important point not to forget is that if employees do want to opt out then you must collect and keep their response in writing. It is not good enough to rely on verbal communication and I have seen examples of the pension regulator levying fines against companies who have not kept good written records of their employees responses to opt out.
Stage 5 – Within 5 months of your staging date
You have five months from your staging date to sign your declaration of compliance. This essentially tells the pension regulator that you are fulfilling all your pension obligations by giving them the details of you pension scheme and employees that fall under it.
This can be done quickly and simply from the pension regulators website, but don’t forget as you can receive a penalty if you forget to do this! Again your accountant should be monitoring your situation to make sure that you do not miss this deadline.
Well there it is the auto-enrolment process you may have to go through as a small employer in five easy stages. Hopefully when it is broken down like this it does not appear too daunting for you.
I hope you have found this blog useful and I welcome your comments and feedback. If you want to discuss your personal circumstances with me please feel free to e-mail me at: firstname.lastname@example.org.