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The new company pension rules and what they mean to you

Nov 15, 2013
Last year the government introduced legislation designed to encourage employees to start saving for their retirement. The scheme, known as Auto Enrolment, requires companies to provide and contribute to a pension for their employees, and there are penalties for those who do not comply. The Mover asked Dena Al-Dossary, Work Place Pensions Co-ordinator for financial advisers the Charles Derby Group to explain what the new rules mean and how they affect your business.



Auto Enrolment

The government introduced Auto Enrolment in April 2012, the first staging date (the date when an arrangement must be in place) for companies with over 250 employees was October 2012. Smaller companies will be phased in over 5½ years. Their staging date is assessed by the number of eligible workers on their payroll as of April 2012, regardless of whether they employed more workers after that date or even reduced their staff numbers. By February 2018 all employers across the UK should have a compliant scheme running for their employees.

Why was Auto Enrolment introduced?

  • A significant number of the UK’s working population are not planning for their retirement, and are not looking to take up personal pensions that have or could be offered.
  • There is a rising number of people of retirement age, compared to those of working age simply because we are living longer.

Does this affect you now? - Discussions around this topic suggest that too many companies with fewer than 20 employees have not taken any action, believing they have plenty of time to comply. In fact it is one of the concerns of The Pensions Regulator (TPR) that many employers are not seeking advice, and those that are leave it too late. It is recommended that an employer should begin the process nine months before their staging date.

 

How to find out your staging date – As mentioned above this is determined by the largest number of eligible workers on their payroll (PAYE) records. Most employers will look to their trusted advisers to help them in the maze that is Auto Enrolment but TPR have set up a process for informing employers of their duties and when their staging date is. A simple tip for finding this out would be to go on TPR's website and click the interactive tool button that says ‘Find out your staging date’.

What if your employees don’t want to auto enrol? – Every eligible jobholder will have to be automatically opted into their company’s chosen compliant scheme. However, there are processes in place if a jobholder wishes to opt out of this scheme, although there are specific time periods. Active members can still stop their membership after this date, but this would not be an ‘opt out’ that is described in legislation but treated in accordance to their chosen scheme.

NEST & Auto Enrolment  -There is a common misconception that the National Employment Savings Trust (NEST), a government sponsored pension scheme and Auto Enrolment are the same thing. In fact NEST is just one of the choices an employer can make as part or all of the solution to Auto Enrolment. NEST has been funded by the government and has an obligation to accept all members regardless of their contribution levels and earnings. An impressive £600 million has been put into this scheme, so for the government this has to work, but for many employers it isn’t necessarily the best solution. The private sector has an important part to play and may be able to offer advantages to meet certain employer/employee needs. Intermediary companies are useful for this process as they can provide comparisons across the whole of the market and offer a wide choice of options.

What if you sit back and do nothing? – Auto Enrolment is a new legal requirement and if you don’t adhere to your responsibilities as an employer there are financial penalties and they could be crippling. The table below shows the rising penalties for employers who ignore their Auto Enrolment duties.

Number of employees                                    Daily rate of fine after staging date(£)

            1-4                                                                      50

            5-49                                                                     500

            50-249                                                                 2,500

            250-499                                                                5,000 

            500+                                                                   10,000

 

When should you start looking at this? - It has become clear that for an employer to have maximum choice for their chosen work place pension they should carry out a review of their needs in plenty of time as we move towards 2015 when a much larger volume of employers will have to implement Auto Enrolment. This means pension providers will be in a position to choose which organisations they help and may result in an employer having no other choice but to use the NEST option, which may not be appropriate your work force.

 

As an employer it is imperative that you review your business needs and put in place the most appropriate solutions early to avoid having little or no choice at all.

 

 

 

The Charles Derby Group is a UK financial advisory business devoted to helping businesses with their Auto Enrolment duties and supporting employees with financial advice. Dena is happy to answer auto enrolment questions and can be reached on dena.aldossary@charlesderby.com. For further information please visit www.autoenrolmentcentre.com

 

Charles Derby is a trading style of Charles Derby Financial Services Limited which is an appointed representative of Intrinsic Mortgage Planning Limited and Intrinsic Financial Planning Limited who are authorised and regulated by the Financial Conduct Authority (see the FCA register at www.fca.org.uk/register/, references 440718 and 440703).

 

The value of the investment can go down as well as up and you may not get back as much as you put in.

 

 

Photo: Dena Al-Dossary


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