Small businesses up and down the UK are preparing for the unenviable task of switching their workforce over to auto-enrollment for workplace pension schemes before the upcoming 2018 deadline. The changeover has been happening since 2012, but for the first few years the government has concentrated on larger firms that are better equipped to handle the transition thanks to their superior knowledge of the pension market. Now, however, it is the turn of smaller concerns to get their houses in order. For those with up to 50 staff on their books, the likelihood is that they will have little experience of pensions or what they mean for their business. So, in order to shed a little light on what can be a confusing subject for many, we’ve compiled this article to show you exactly what the new laws mean for you and your workers.
What do the new laws mean for my business? The introduction of auto-enrolment is a change in law that will affect all employers based within the UK. If you do not already have a workplace pension scheme set up you will need to do so before the 2018 deadline. Failing to comply with the new law could result in hefty fines, up to £500 per day in some instances. Under the new law, employers are required to auto-enrol all eligible members of staff into a workplace pension scheme unless they specifically ask not to be included in one. The key thing for businesses to take into consideration is the number of workers that they currently have on the PAYE scheme, not the company’s overall business turnover.
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Who is eligible for auto-enrolment? Any worker who is over the age of 22, under the current state pension age and earning in excess of £9,440 per year must be enrolled into a workplace pension scheme if they are not already in one. The level of earnings may be subject to change depending on when your staging date is, so please check the threshold when your date comes around. When is my staging date? Many small businesses have already started enrolling their employees, but the transition is running until 2018 so your date may not yet be imminent. However, it is important to be prepared. You can find out what category your business is in and when your staging date is here.
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How much is this changeover going to cost me? The initial amount that each employer has to contribute has already been determined by the government and is related to the category in which your business falls. The set-up fee for a small business is estimated at an average of £8,900. For help funding your business, read more on our alternative business funding solution, the Merchant Cash Advance. What does the changeover mean for my staff and what should I tell them? The change in law is ultimately all about offering people more security when they hit pensionable age. Currently, there are around 11 million workers who are without workplace pensions and, with life expectancy increasing all the time, the government needed to act to address this. The most important thing for you to do as an employer is to communicate the changes to your staff, giving them the facts about what auto-enrolment means for them. Here we lay out what the government suggests business owners tell their workers:
- If you pay into a workplace pension scheme, your employer and the Government will too.
- Auto-enrolment offers you an easy and hassle-free way of saving for your retirement while you earn.
- Building a pension pot will ensure that you can continue to enjoy your current lifestyle when you retire.
- Make sure you take advantage of the contributions from both your employer and the Government.
- Life expectancy is increasing all the time and 20 years of retirement is not uncommon, which means you’ll probably need a healthy retirement fund.
- Although the state pension gives you a foundation, you may want more from your retirement.
- The earlier you start, the more you’ll save.
- Starting your pension fund sooner allows you to save smaller amounts that will have less of an impact on your current way of living.
- You can still ask to join a workplace pension even if you are not auto-enrolled. You may even get a contribution from the Government and your employer.