The SME Guide to 'Auto-Enrolment' Workplace Pensions

Image Source If you're a small business, certain changes are coming to the way in which you have to manage your workplace pensions. Failure to comply with these could put you in line for substantial fines from the government.

Background to Auto-Enrolment

In an attempt to increase the number of people saving for their retirement, the government introduced the Pensions Act of 2011 which stipulated that all workers would have to be enrolled by default into a workplace pensions scheme. Over a period of six years between 2012 and 2018, companies would have to introduce auto enrolment into their offices, beginning with the largest and progressing to smaller firms. 2014 represents an important stage for this role out, as it reaches small and medium sized companies. What's difficult about this, is that companies of this size are less likely to already have a pension scheme in place. Not only does this mean there will be new costs involved, but they will have to administer a workplace pension scheme for the first time.

What will it cost businesses?

First the costs: Firms will have to contribute to their employees' pension pot. This will start at 1% and rise to 3% in 2018, but the biggest cost will come in administration expenses required to manage the pensions. If you currently run your PAYE internally, this cost will come in the form of additional time, and the purchase of new software. If you outsource it, then your provider may up their fees to take account of the additional work involved. Second: the challenge of introducing the scheme. Although the Pension's Regulator's own research suggests that the majority of companies so far have enrolled successfully, there are fears that smaller firms are not prepared, or even do not know when their starting point is.

Avoid common pitfalls

One of the more common mistakes businesses are making is to assume that the provider they currently use for their business pensions will take these on, but the truth is very much different. In reality, many pensions providers are refusing to offer auto enrolment pensions for companies with less than a certain number of employees. This might seem to illustrate a worrying prejudice against small companies, but what it does mean, beyond a shadow of a doubt, is that you cannot just assume your existing provider will cover these changes. The Regulator's approach has been to focus on education rather than compulsion to implement these changes, so if you're struggling to come to terms with the new rules, the best course of action is to get in touch and get advice from them. However, if you do fail to comply then the penalties the Regulator may choose to enforce can be severe. You'll have to pay any backdated pensions contributions that you've missed and could pay daily penalties starting from £500 and rising to £10,000 depending on how many employees have been affected. So, the message is clear. Auto enrolment will constitute a major change for your company. It's worth getting your act together now to avoid major problems further down the line. For information on other common aspects of running a small business, such as alternative finance options, browse through the Choice Loans website.