Most owner-managed businesses have managed to survive setting up auto enrolment, but that is not the end of the process. Once you have established your business's auto enrolment there are ongoing reviews and an increasing cost to build into your business.
Nearly all SMEs are now covered by the requirement to provide a company pension scheme and for all eligible employees to be enrolled into the scheme. The take up of the scheme has been higher than expected, partly due to the low initial cost of joining the scheme for employees. There is no guarantee that this will continue as the cost for employees increases, especially if wage increases remain low and inflation starts to increase.
There continues to be concern that employees believe they will be putting sufficient away for a happy retirement but, will find a shortfall between expectations and reality come retirement. Also, as employees move between employers, they will lose track of what pensions they have and where. Not all employers have the same pension providers and not all employees will move their pension pot around as they move jobs.
I know of some employers who managed to adapt an existing pension scheme to qualify as an auto enrolment scheme, while others may have opened another scheme, which generates additional admin and red tape for the employer to manage. Payroll providers are passing on additional charges onto small enterprises to manage their pension. One business owner I spoke to was shocked by the charges being made by the payroll provider and is now looking to switch providers to control their admin costs.
Employer on-going commitments of auto enrolment
- You must remember to add any new employees within 3 months of them starting work, and some employees may qualify some months but not all months depending on their wages.
- The contribution rates increase over time, from April 2018 the employer rate increases to 2% and then 3% from April 2019. Whilst this increases the cost base of a business, it is still considerably below the rates paid by the public sector which are currently around 20%, so there is a major variation to the funds being paid into a pension fund, and hence the ultimate pension available to the employee. Consideration, needs to be given to the impact on the profitability of your business as this cost increases.
- There is also the need to re-enrol those employees and workers who opted not to be en-rolled initially. This means you need to assess all eligible workers between the ages of 22 and pension age, who works in the UK and earns over £10,000.
You must re-enrol every 3 years from your initial staging date, but you have 6 months window to choose the date, based 3 months either side of the third anniversary. This is so that you can fit it around other regular business processes. Once the date has been set and you have notified the pension regulator you have 6 weeks to complete the process. This is 3 years from your staging date, and not 3 years from the employee starting employment with you. So some employees may opt out, but be re-enrolled a couple of months later and need to opt out again.
As you already have a pension established and hopefully some staff are already enrolled the re-enrolment exercise shouldn't be as time-consuming as the initial set-up process. But you do need to allow for anyone in the scheme who has opted to contribute less than the minimum contribution.
Once you have assessed your staff you need to re-enrol them and then write and advise them they have been enrolled. They then have a month to opt out again. Your pension provider should provide template letters, to ensure you meet your obligations.
Future pension contributions
As the minimum employee contributions also increase over the next couple of years, some employees may decide to stay in but pay a lower contribution, so while you may think they are enrolled, come any subsequent re-enrolment they will need to be re-assessed and re-enrolled if appropriate. The employee rates increase to 3% in April 2018 and then 5% in April 2019, some employees may decide they cannot afford the higher contributions, but you will still need to pay the higher employer rates. Staff could be looking for higher wage increases to compensate for the higher pension contribution, this is on top of the higher employer contributions. Effectively wages will increase by 3% per annum without the employee receiving any benefit in their back pocket.
As always, the pension regulator, needs you to confirm once you have completed the process, and if you delegate this to your payroll provider expect additional charges to be incurred. As it could have been 3 years since you last contacted the pension regulator, who need to keep a note of your log in details, especially if staff members change in those 3 years.
I suggest you speak to your Finance Director (aka FinanceHead!) and ask them to model the impact on your business so you can plan for the changes. To find the 'best fit' for your business contact Michael Cartwright.