Monday (01 June 2015) is a milestone date for pension reforms. From this date, certain SMEs, with less than 30 staff will have to start to comply with the new work place pensions legislation and by April 2018 all SMEs will have to comply. Those who don’t comply, could face fines of up to £500 a day. In the UK this will affect 1.3 million employees.
There are 30,000 active businesses in Norfolk, with SMEs being the backbone of our economy. Collectively, these businesses employ hundreds of thousands of employees and all will eventually be affected by the pensions legislation.
There are different staging dates for SME employers to comply with the pensions legislation – the Pensions Regulator website has a step-by-step guide to help you, but click here to check when your compliance date comes into effect. Norfolk Chamber would also recommendthat one of the first steps that employers should take should be tospeak to their accountant or financial advisor or their existing pension provider.
In the UK at present there are around 10 million people eligible for auto enrolment and 5 million have already been enrolled. Currently, just 9% of savers are opting out, which highlights the fact that if it’s made simple and easy for people to save then, by and large, people will do so.
What is Automatic enrolment?
A portion of an employee’s wages is diverted to their pension fund, assuming they are aged between 22 – 65 and earning more than £10,000 a year. Employers are obliged to pay in as well, with the Government adding a further small sum through tax relief.
Initially, an employee will see a minimum of 0.8% of their earnings going to their workplace pension and tax relief will adds a further 0.2%. The employer is obliged to add a contribution of 1% of the worker’s earnings. This rises to a 5% contribution from the employee, 3% from the employer, and 1% in tax relief in October 2018. However there are concerns that these pension savings may not be sufficient to ensure a reasonable income at retirement.
New Research
New research, out today from ‘Now Pensions’, reveals that one in four (27%) of all businesses who need to comply haven’t yet given any thought as to how they will find a provider. Whilst this is an improvement on 2014 – when four in ten (44%) of SMEs hadn’t thought about it – it still means that almost 350,000 businesses are unprepared.
Now Pensions highlighted that firms can’t bury their heads in the sand over auto enrolment; yet more half (52%) who haven’t yet found a pension provider, don’t think there will be any issue finding one. However this may be easier said than done, as not all employees are an attractive prospect to pension providers – especially those on lower salaries – and providers may not be willing to accept all employers and all employees on equal terms. Less than one in ten (9%) of SMEs appreciate this reality and worry that providers might ‘cherry pick’ business.
They also noted that the complexity of the subject compounds the issue; a third (34%) of small firms don’t understand how auto enrolment contributions are calculated. Some companies – however – have at least given a bit of thought as to how they will go about finding a provider, with a quarter (26%) intending to seek help from their accountant; one in six (16%) saying the will rely on their existing scheme provider while one in eight (12%) will search the market and do the research themselves.
