How Will The Auto-Enrolment Pension Scheme Affect Your Business?
28 March 2017
More than 400,000 employees are now part of an auto-enrolment pension scheme in Scotland. The program was introduced by the UK government in 2012 as part of a plan to encourage people to save for old age. For many, it will provide a security blanket that previously did not exist.
Workers now have the right to opt out of the pension (and will be automatically enrolled), rather than opting in, as was the case previously. It is thought people are more likely to stay within the scheme instead of dealing with the hassle of filling in any paperwork to remove them from it.
Initially, employers will have to make a minimum contribution of one per cent, this will rise to three per cent by 2018. The pension contributions are deducted from the gross salary before tax and National Insurance is calculated.
Statistics released from the Department of Work and Pensions have revealed that, in some local authorities, it has doubled the number of people with access to a private pension. This has a two-fold affect: workers will have a nest egg for retirement and the government may therefore have to fork out less money to subsidise those who have no savings.
Almost a million small businesses have been told by The Pensions Regulator that they must set up a workplace pension this year. If they don’t, they face a minimum penalty of £400. If you are a sole trader with no employees or director of a business with no employees, you have no enrolment obligations but must inform The Pensions Regulator.
Employers will have to automatically enroll eligible employees (those aged at least 22 but below State Pension age and earning more than £7,475 a year) and make a minimum contribution into their retirement pots.
However, many small businesses are claiming that they do not have the in-house resources to deal with this government initiative and that they will be subject to administration charges they cannot cope with.
With 1.5 million businesses set to be involved in auto-enrolment by 2018, the scheme is bound to have a financial impact of a large proportion of these – including staff bonuses and pay rises.
The Centre for Economics and Business Research found that small businesses face a set up fee of £8,900 to get ready for the new legislation. This figure rises to £12,600 for small-medium businesses of 100 employees and £15,600 for companies employing 250 people.
On top of these initial costings is the administrative side of auto-enrolment. Businesses are set to face a total of 33 different tasks in order to be compliant with the scheme – which could take up to 103 working days to complete.
Another consideration for business owners will be how the rules will impact on temporary workers, contractors and consultants. Agency workers will now qualify for the same treatment as permanent staff in respect of pay and benefits after 12 weeks of continuous work within a company.
If auto-enrolment has affected your staffing requirements, click here to meet out accountancy team and discuss your needs with them today.
Written By Mary Palmer