Auto Enrolment Northern Ireland
Over the past year nearly 2 million employees have been enroled in a work place pension through the Government’s Auto Enrolment system.
The “pension revolution” started in October 2012 and has so far only affected large employers with over 120,000 employees.
However over the next two years thousands of small and medium sized businesses in the UK will have to start to take on the daunting task of launching workplace pension schemes under the auto enrolment project.
Medium-sized companies will do so from April 2014, and firms with fewer than 50 employees start in June 2015, with all eligible workers enrolled by 2018.
It is the smaller employers – those with up to 50 staff – with little experience of pensions who are more likely to find it difficult to cope with the administrative and cost burden of auto enrolment, rather than large firms well versed in workplace schemes.
As the SME sector form the core of the local economy accounting for over 90% of all businesses in Northern Ireland and employing around 347,000 people, Auto Enrolment will pose a particular challenge to the local business community
The message for small businesses is clear: Start preparing now to ensure a smoother transition and less upheaval when the time comes to enrol staff.
Why has the government introduced Pension Auto-Enrolment?
There are two main reasons why the government has introduced compulsory enrolment into work place pensions.
Primarily we are not saving enough to afford a comfortable retirement. Recent research from fund manager Barings showed a third of those questioned, or 12.5 million of the UK population, admitted they had no pension in place.
Secondly we are on average living longer, an increasing number of us will spend at least 20 years in retirement. We have an ageing population – by 2020 half the UK population will be aged 50 or older – meaning fewer future taxpayers to bankroll a greater number of pensioners.
The Government faced with this impending pension funding crisis felt it had no alternative but to take action to encourage people to start to contribute to a pension.
What are the employer’s legal duties?
Auto enrolment requires all employers to enrol all eligible employees into a workplace pension scheme with contributions coming from both the employee and employer. Employees if they don’t want to be in the scheme then have to actively opt out.
Eligible employees are classified as being aged between 22 and the state retirement age and earning more than £9,440 per year
After a phased introduction, from October 2018 all firms will eventually have to contribute at least 3 per cent of their employees’ salary, with employees contributing 4 per cent, and 1 per cent coming from tax relief, making 8 per cent in total.
Employers will be responsible for the ongoing maintenance of the scheme and have an obligation to keep certain records, which must be provided to The Pension Regulator when requested.
The employer duties are not optional. The regulator will ensure employers comply with the new duties. Although their approach will be to educate and encourage compliance, employers will face substantial fines if they don’t comply.
What are the benefits of Auto Enrolment?
This is the Government’s way of “nudging” people towards the habit of saving for their retirement.
Saving this way is also tax efficient as the government will contribute to your firm’s pension scheme as well, through tax relief. This means money that would have gone to the government as tax, goes into your employees’ pensions instead.
Key actions an employer must take.
- Find out your company’s start date for automatic enrolment, known as the Staging date.
- If you have an existing scheme. Is it compliant with the new regulations? If not, what changes need to be implemented to make it compliant?
- If your firm doesn’t have an existing pension scheme you need to have a qualifying scheme registered with the Pension Regulator by your staging date.
- Remember you’re not alone in preparing for auto enrolment. Your financial adviser is there to help.
- So contact your financial adviser six months before your staging date, and start putting plans in place for the smooth introduction of auto enrolment to your business.