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Pensions

Summary of Key Points

  • Opt out of the scheme if you have no staff other than the business owners.
  • Identify your staging date.
  • Identify which staff are likely to be in the scheme.
  • Choose payroll software which is fully compliant.
  • Choose a pension fund which is fully compliant and which easily accepts data from the payroll software.
  • Get ready to communicate to your staff 3 months before the staging date.

Background

There is a big gap between the pension provisions many people have, and the level they need.  The Government have decided to plug a part of this gap by compulsory workplace pensions.  The name of this compulsory scheme is Auto Enrolment (AE).

Opting out

If you employ staff who will qualify for an AE pension, you cannot opt out.  The Pensions Regulator (TPR) has the power to apply hefty fines for employers who fail to operate AE when they are required to do so.  Employers should view AE like PAYE – it is mandatory to operate this unless you want to run this risk of very significant penalties.

Very small companies can opt out where they meet the following tests:

  • The only employees are either directors without service contracts, or connected parties of such directors where the connected parties are happy to opt out of AE.
  • The business has submitted an e-mail to the TPR informing the regulator that it is entitled to opt out and wishes to do so.

Staging Date

The business should next identify the date by when AE must be operated – the staging date.  This date is different for all employers, so the system is not swamped with millions of businesses submitting new data at the same time.  Most small employers will have a date between September 2015 and December 2017.

Eligible Staff

AE must be operated for staff who are:

  • Aged 22 and over.
  • Under State Pension age, and
  • Earning over a minimum threshold, which is £10,000 per year for 2016-17 tax year.

If in any doubt – for example someone whose pay is variable and close to the threshold – include the member of staff and let the payroll software do the AE calculations.

Cost

The cost to employers of the contributions to the pension scheme, as a percentage of gross pay, is:

  • 2% up to September 2017.
  • 3% from October 2017 to September 2018.
  • 4% from October 2018 onwards.

Because of the extra costs involved in running payroll and operating the system, most payroll providers will charge extra for doing this.

Payroll Software

It is important to choose good software which ideally has coped well with the employers who have already had their staging dates.  Oaktree uses Able Internet payroll for all clients and everything has gone well so far.

Choosing a fund

For employers who do not currently operate a pension fund, there is a need to choose one.  This fund must:

  • Provide staff with a decent pension at a reasonable cost, and
  • Easily accept data downloads each month from the chosen payroll software.

If in doubt, Oaktree recommends NEST – National Employment Savings Trust – which has coped well with those employers who have already started AE.

Links

The Pensions Regulator
http://www.thepensionsregulator.gov.uk/employers/the-essential-guide-to-automatic-enrolment.aspx

Able Internet payroll
http://www.ableinternetpayroll.com/

NEST
http://www.nestpensions.org.uk/schemeweb/NestWeb/public/home/contents/homepage.html