by Bev Harrison, from AFH Wealth Management
The new law requires all employers with one or more workers to automatically enrol certain members of their workforce into a pension scheme into which they must make contributions. A jobholder who is eligible for automatic enrolment is one who is aged between 22 and State Pension Age and has earnings above the current earnings trigger of £8,105 p.a. Other workers will have the option to join the “qualifying” pension scheme if they wish, but they may not be entitled to employer contributions being paid.
When is your firm’s Auto-enrolment staging date?
The law comes into force for large employers from 1st Oct 2012, with smaller firms to follow. The exact auto-enrolment staging date for each employer is determined by company size and PAYE code. Staging dates for small employers have been delayed and those with 50 or less staff will start to be phased in from April 2015.
Details of staging dates can be found on The Pensions Regulator site: http://www.thepensionsregulator.gov.uk/employers
Do you know your duties as an Employer?
As an employer you must: automatically enrol your eligible workforce into a qualifying pension scheme, make contributions on behalf of your employees, register with The Pensions Regulator, communicate certain information to your workers, and comply fully with the pension law to avoid fines and prosecution.
If you have an existing pension scheme you will need to make sure that it meets the criteria of a “qualifying” scheme. If it does not, then you must take action to amend or replace it. If you do not already offer a pension scheme to your workforce then you will need to establish a suitable “qualifying” pension scheme and enrol your employees into it. Your employee will not be able to opt out of the pension until after the first deduction is made from their monthly salary.
The contributions are also staged, but by 2018 the total minimum contribution for most will be 8% of eligible band earnings (for 2012/13 this is in line with National Insurance contributions lower and upper earnings limits, currently between £5,564 and £42,475) this is made up as follows: the employee will pay 4%, the government contribution as tax relief (for basic rate tax payers) will be 1% and the employer will pay 3%. These are minimum amounts and some employees and employers may wish to pay more.
You will be able to use any pension scheme you wish, as long as it is a “qualifying” scheme. Insurance companies are already putting new procedures in place so that many of their group pension products are deemed to be “qualifying” and fit for purpose and they are also working hard to minimise the additional administrative burden that auto-enrolment brings for employers.
In addition to products available from Insurance Companies, the Government has also introduced the National Employment Savings Trust or NEST pension scheme.
What is the National Employment Savings Trust (NEST)?
The NEST pension arrangement has been created as a low-cost option available to any employer who may wish to use it. NEST will be operated by the NEST Corporation, which is a non-profit trustee corporation regulated by The Pensions Regulator.
Whilst the NEST scheme will be a low-cost pension available to all employers, it has a number of restrictions which may not appeal to all. These include: that no financial advice will be provided, there are restrictions on the number of funds available, restrictions on total contributions that can be made, and it is presently not possible for the NEST scheme to accept transfers in or out of other pension schemes.
Considering all of the above restrictions, group pension arrangements could be a more appealing alternative for some employers, as they may still be able to benefit from a low charging environment in which these restrictions do not apply.
What should you do now?
Every employer must act as a result of the new pension law; simply not doing so will lead to hefty fines being implemented. Planning early for the changes will give you a better understanding of the ultimate impact on your business.
At AFH Wealth Management we offer a free initial consultation to discuss your company’s position and options available with regard to the new workplace pension law. As an Independent Financial Advisory firm we can also advise on all aspects of financial planning, including Director Pensions, Succession Planning and Business Protection.
Please call Beverly Harrison on 07919 363609 or Andrew Harrison on 07580 126787. Alternatively email: email@example.com
This article is for information only and should not be construed as advice or recommendations on how to proceed. Please contact us for further information before taking any course of action.