Auto-Enrolment is going to cause numerous headaches for the small business!

Not only do they face additional costs, but perhaps most significant of all, yet another administrative burden: and failure to ensure complete compliance to a myriad of regulations and statutory obligations will entail big fines.

The root of this, of course, is the pensions ticking time bomb: we are all living longer, thanks to massive improvements in medicine, treatment and generally improving health regimes.

As people live longer, then they become a dual drain on increasingly scarce government resources: and, the sad reality of better health and improved longevity is greater and greater cost demand on public finances. When already, the total spending by the UK government on Social Security (including pensions) dwarfs most other budgetary sectors.

Something had to be done.

Hitherto, any form of private sector pension was considered the province of higher paid employees, working for a major company who would offer a non-contributory final salary pension as part of the remuneration package.

Or those fortunate enough to be working in government.

Not anymore, sadly: unless you work in government!

Now, ALL employers, even with only a few staff and those only earning a miserly annual sum, much less than 35 hours per week at Minimum Wage level will have to be offered the choice of at least, an Auto-Enrolment conforming pension plan, with contributions from both the Employer and the Employee.

Sure; the employee can say “No thank you!”, however, in order to comply with statutory requirements, every qualifying employee must firstly be included and only removed if they formally demand to opt out : and each six months they must be re-offered the pension, they must be re-registered and must formally refuse and opt out once again!

And the employer must be able to demonstrate from correct and provable records the offer had been made and refused.

And woe betide the employer who fails to adhere absolutely to the statutory letter of the law.

The penalties are truly swingeing!

The basic realities are:

Where an employee earns above £7,475 P.A. then you MUST enroll them in an approved scheme.

Those who earn under that threshold, but above £5,715 can Opt In and demand membership of your pension scheme; and your contribution will be 3% of gross wages. (but not outside what are deemed “Qualified Earnings”; which at present are between first £5,564 of earnings will not count, and nor will any earnings above £39,853. Both are linked to CPI, personal tax allowance and NIC Lower Earnings Limit and will escalate annually).

The total of employer’s and employee’s pension contributions will be 8% as a statutory minimum.

However, this is not all! It wouldn't be!

If an employee earns less than £5,715, then no employer contribution will be necessary.

Thus a worker earning current Minimum Wage (£6.08; aged 22 and over) and working just 25 hours per week will be exceeding the mandatory "Opt In" level of £ 7,475 P.A. and the employer MUST offer an AE approved pension: and the employer must additionally make contributions of 3% and the employee up to 5%.

Any employee earning less than the £5,715 threshold, can still demand to Opt In: however in this case, no employer contributions are necessary.

The Roll Out Timetable for small businesses is:

30 to 49 members 1 August 2015 to 1 October 2015

Less than 30 members 1 January 2016 to 1 April 2017

Clearly, you, will need considerable help and advice in order to negotiate this minefield of complexity and statutory regulation.

Do not delay! Contact MCFA, NOW!

n.b. This information is provided in good faith as a service to our clients however it is intended to be purely indicative of the regulations and our understanding of the regulations at the time of writing which may well change and must not be taken as an explanation of the law. Please seek correct final advice before acting on the information herein contained. MCFA can accept no liability where employers act on this advice.

Also please note, the earnings thresholds etc are as at April 2012: they will be indexed by CPI and additionally Personal Tax Free Allowance used to compute income tax and by National Insurance bandings as time moves ahead.)

Reference Resources:

http://www.thepensionsregulator.gov.uk/employers/7-steps.aspx

http://www.pensionsadvisoryservice.org.uk/future-pension-reforms/auto-enrolment

http://www.direct.gov.uk/en/Pensionsandretirementplanning/DG_183783

http://www.dwp.gov.uk/newsroom/press-releases/2012/jan-2012/dwp010-12.shtml

http://www.nestpensions.org.uk/schemeweb/NestWeb/includes/public/docs/Employers-guide-to-automatic-enrolment,PDF.pdf

http://www.legalandgeneral.com/workplacebenefits/employers/pensions/autoenrolment/auto_enrolment_faqs.html

http://www.legalandgeneral.com/workplacebenefits/employers/pensions/autoenrolment/

http://www.director.co.uk/magazine/2011/8_September/auto-enrolment_65_01.html