Auto Enrolment Pensions – How will it affect you?
How does Auto Enrolment affect the employee?
If you’ve worked for a large organisation chances are you’ve benefited from being able to join a company pension scheme. So you’ll be familiar with the idea of saving from your pay packet into a pension scheme with a limited choice of funds.
But for the millions working in micro and small businesses it will be the first opportunity to join a low cost pension scheme. Over the next 3-4 years all employees will have the opportunity to join a pension scheme with much lower charges than those offered in the past by financial advisers.
Both your employer and the government will contribute to the Auto Enrolment scheme.
But it will mean reduced take-home pay. Although your employer will make contributions, you will also be expected to pay a minimum of 4% into the fund after tax. Not only that, but you will automatically be enrolled into the scheme unless you opt out.
How does Auto Enrolment affect the employer?
Setting up an Auto-Enrolment pension scheme will be a major task for all employers – so don’t underestimate it. Your staging date is the date you must have a scheme ready for and is individual to each company. The rules are complex and each stage requires you to make decisions on behalf of both your business and your employees. If you operate through a limited company you have a duty as directors to consider what is best not just for your business but also the employee. You may need to take on additional staff or pay for external help depending on the size of your business. Once the scheme is established it should require less effort, but the penalties are severe if you fail to comply with the requirements.
So how much will pension Auto Enrolment cost?
By 2018 you will be expected to contribute a minimum of 3% of qualifying earnings into the pension funds of your employees. And in the long term it will be interesting to see whether this percentage remains at 3% as the pressure on government welfare spending increases.
It is worth considering very carefully how your contributions fit into your overall remuneration strategy. How much would your staff value higher pension contributions over pay in their pockets? The answer to that will lie in the make-up of your staff.
With the huge rise in numbers of businesses due to stage in the next 2 years there will be a shortage of advisers in a position to help. We are already helping small businesses to prepare for Auto Enrolment. Use our contact form and see how we can help you. Get in touch here.
Or phone us on 01243 788041 and find out how we can help your business.