Auto Enrolment is approaching a tipping point. Where once the burden of compliance was only with big businesses, it is now affecting smaller businesses (those with less than 50 employees).We're all in pension

A survey conducted by the payroll & accounts software provider Sage, found that one in five small businesses are not preparing for auto-enrolment.  The problem is that auto-enrolment cannot be ignored; the legislation puts the responsibility firmly on the shoulders of employers to operate a qualifying scheme.  Failure to comply will result in a series of penalties and fines. 

The Chief executive of The Pensions Regulator, Bill Galvin, has stated:

“Every employer needs to play their part to make these pension reforms work, and our goal is to make that task as straightforward as possible.  For those that do not engage, however, we want to make it clear there are consequences. We’ll apply the law fairly and where we find consistent or wilful non-compliance we will use our powers, so that employees do not miss out on contributions they are due.”

The regulator has already launched at least 590 investigations into potential non-compliance in to those employers who have already been required to set up schemes.

Auto enrolment applies to all employers, even a sole trader with one employee and therefore will apply to you!

Having spoken to our larger clients who have already gone through the process of implementing auto-enrolment, the view is that on average it takes between four to six months to put in a qualifying scheme.  It is reported that the preparation involves 33 different administrative tasks.

There are 1.2 million businesses that are now approaching their staging dates (the date by which the qualifying scheme has to be in place). This is creating a huge increase in demand and placing pressure on the pension industry.  Some providers are already closing their doors to new customers.  There is the Government backed scheme NEST and other organisations such as NOW and Peoples Pension, specifically set up for qualifying auto-enrolment schemes.  However, it is vital that employers start as early as possible so they are ‘in the queue’ and can meet their staging date while still having some choice over provider.

All employers need to start planning to enable their staging date to be met.  You can apply for a three months delay, but outside of this delay, penalties start being incurred. 

First you need to establish your staging date.  Using the website link below together with your PAYE reference number, you will be able to find your date.

Consideration will need to be given to your payroll software or, if you outsource, obtain confirmation that your provider can deal with auto-enrolment.  The majority of payroll software providers have upgraded their systems for employers to be able to cope with auto-enrolment, so that they can keep track of ages and earnings.  Time will need to be spent setting up and updating the system, adding all employees’ personal information and details as required for auto enrolment – RTI all over again!

Who do you have to Enrol?

All employees, whether part-time, full-time or on a fixed contract aged above 22 and below state pension age who earn over the “earnings trigger” in a pay reference period must be auto-enrolled.  The word is must, it is not an employer’s choice (or the employees’ choice, although they can opt out after being enrolled).


Auto-enrolment means employers have to contribute to an employee’s pension.  Again, there is no choice for the employer.

The minimum the

employee pays

The minimum the

employer pays

The government pays

0.8% of ‘qualifying

earnings’ rising to

4% by 2018

1% of ‘qualifying

earnings’ rising to

3% by 2018

0.2% of ‘qualifying

earnings’ rising to

1% by 2018

Qualifying earnings will be total earnings falling within an earnings band of £5,772 to £41,865 for 2014/15.

In addition to the time costs, Employers need to factor these pension contributions into their future financial forecasts.  Consideration should be given to pay rises being adjusted to cover the cost of future pension contributions.  Alternatively, salary sacrifice, using the employer’s national insurance savings to help fund part of the overall contribution for both the employer and the employee can be considered.

Factors likely to increase complexity:

  • internationally mobile staff
  • workers whose employment status is not clear
  • staff on zero hours contracts
  • low paid staff with fluctuating earnings
  • other benefits which are based on pension scheme membership

If any of the following apply, early preparation is particularly essential.

The benefits of planning in advance can be summarised as:

Cost control: If costs are known, they can more easily be budgeted for. Will the extra cost come from adjusting prices, constraining wage increases or from some other source?

Risk: The risks of errors or fines are reduced if your approach is planned in advance.  A number of the larger business have taken the three month postponement option, but are still struggling to implement on time.

Communication: The way a scheme is communicated will affect how it is received by employees. Carefully planned communication can help increase appreciation. It may be that some issues will require consultation.

Peace of mind: If you have carefully planned, it will be one less thing to worry about!

A great deal of practical advice and assistance can be found at The Pension Regulator’s website, Key are also working with a number of providers who can assist with implementation.

Should you require any further details on the items contained in this guide or tax advice in general, please do not hesitate to contactHarbour Key Limited.

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16 July 2014

Harbour Key Limited

+44 (0) 1242 244115

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