Call it what you will – ‘crisis’ and ‘time bomb’ are two of the most widely used phrases – the fact that a major problem with pensions is looming has long been acknowledged in the UK. The simple fact is that outside the public sector, most people are simply not making anything like adequate provision for their retirement.
Various Governments have sought to address this problem over the last thirty years and it’s fair to say that none of the attempts have really improved the situation. Now the Coalition Government has decided that compulsion is the only answer, and from October of this year the largest firms (those with more than 120,000 employees) must comply with the new ‘auto-enrolment’ regulations.
What do these regulations say? Simply that if you employ people and pay them through the PAYE system they must be automatically enrolled into a company pension scheme, with minimum levels of contribution laid down by the Government.
It is highly likely that larger employers will already have a pension scheme in place – but these new rules are not really aimed at the larger employers. Generally speaking it is the smaller employers who don’t have pension schemes – and even where there are schemes, pension take-up by employees is lower among smaller firms. The initial emphasis will be on ‘mopping-up’ any large employers without pension schemes, but no employer will escape the net. The Government have a specific timetable which stipulates the dates by which firms of a certain size must comply with the regulations. For example, all firms employing more than 250 people must comply by 1st February 2014, and the last date applicable for any firm currently trading is April 2017.
As you might expect, there will be a harsh regime of financial penalties for companies that don’t comply with the rules.
The initial levels of contributions that have to be made to the pension are relatively low. The Government is not claiming that the contributions will lead to an adequate pension – what they are focusing on first is getting firms to comply with the regulations, and by extension, getting far more people contributing to a pension.
While the pension contributions required from an employer will obviously add to staff costs it may well be that the administrative burden of complying with the rules will be the major detrimental factor for smaller companies – especially those that have a high level of staff turnover. Some firms could well be faced with taking on an extra member of staff to cope with the resulting paperwork and staff queries.
With the penalties for failing to comply with the regulations and the possible costs of auto-enrolment – both financial and administrative – it’s important that employers don’t put off dealing with this until the last minute. Inevitably there will be a rush of ‘deadline day’ paperwork from employers who have done exactly that and the Government have warned that they will be looking to penalise non-compliance. There is also the chance any new Government will bring forward the current deadlines.
We will be happy to talk you through exactly what auto-enrolment means for you and your business. We will also be able to estimate the likely costs of the new rules for you. Simply give us a call on 0116 2355733 and we will be happy to help.
Sources: http://www.bbc.co.uk/news/business-16841747, http://www.ifaonline.co.uk/ifaonline/news/2143489/amended-auto-enrolment-regulations-published, http://www.thepensionsregulator.gov.uk/press/pn12-18.aspx, http://www.thepensionsregulator.gov.uk/docs/pensions-reform-employers-duties-compliance-and-enforcement-quick-guide.pdf