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auto-enrolment SMEs AE – a tough time for SMEs


Mark Sapsford, Payroll expert of Moorepay, explains why it is vital for SMEs to prepare for auto-enrolment now


T


he UK government’s flagship pension auto-enrolment scheme proved a resounding success last year. At the end of 2013, The Pensions Regulator released figures showing that more than two million workers in over 3,500 companies are now saving into a pension scheme at work. But while auto-enrolment has been a success for large businesses, it may not be as easy for small to medium-size employers (SMEs). The UK’s largest employers were required to implement auto-enrolment first, partially because their additional resources give them access to professional advice, allowing them to find a scheme best suited to their workforce. However, the ‘real test’ is yet to come – since the country’s many small and medium-sized businesses will face their staging dates this year. With fewer financial resources at their disposal than their larger counterparts, SMEs will find it more difficult to get the right guidance for a smooth auto-enrolment transition. The National Association of Pension


Funds (NAPF) said: “We are pleased that auto-enrolment has got off to such a great start and that there is strong support for saving through workplace pensions. “However, the real test will come when small- and medium-sized employers, who have fewer resources and less pensions know-how, start enrolling staff. The challenge now is for the government and The Pensions Regulator to make sure these employers understand what they have to do to comply.” While large companies already have the mechanisms in place, many SMEs have never even considered a workplace pension scheme before.


...OUR ADVICE TO SMES IS TO PLAN WELL IN ADVANCE FOR AUTO- ENROLMENT DUTIES...


SMEs need to start planning ahead now to avoid unnecessary costs and ensure access to the best possible advice. A report by the Chartered Institute


of Personnel and Development (CIPD), named Pensions auto-enrolment: the lessons for SMEs, warned companies to prepare now to ensure they are not inhibited by their limited resources. A spokesman for the CIPD commented:


“They are unlikely to have access to the same levels of expertise or support networks as their larger counterparts, and many fear it could be a costly exercise for their business.”


According to the CIPD study, many Key points


What are employers’ responsibilities? Employers are required to automatically enrol into a workplace pension workers who: l are not already in a qualifying pension scheme l are aged 22 or over l are under state pension age l earn more than £9,440 a year (this figure is reviewed every year) and work, or ordinarily work, in the UK. They must also write to employees to let them know that they are being enrolled. There are some exemptions e.g. military service members and companies which have only one employee where the employee is a director of the company. The government has set up the National Employment Savings Trust (NEST) in order to auto-enrol staff. Existing or new schemes can be used as long as they meet the criteria set by The Pension Regulator.


Who is covered?


Generally speaking, those workers who work under employers’ control and direction and who are not self-employed will be covered by auto-enrolment. It is wise to review working arrangements and take expert advice where there are any doubts.


When are the staging dates? The staging date, on which employers are required to comply with the legislation, is being phased in over a number of years – starting with the largest employers. An employer’s staging date depends on the number of workers. You can find out this date by keying in your PAYE reference into the staging calculator on www.thepensionsregulator.gov.uk. Employers should allow sufficient time to prepare for their staging date and to seek advice from a pensions expert.


Be aware of how much pension contributions cost For those schemes like NEST, which are based on qualifying earnings, the minimum percentage contributions are being phased in between now and 2018. These are as follows:


Current minimum contributions: 2% total contribution, of which 1% must be contributed by the employer. On 1 October 2017, the total contribution will rise to 5% of which 2% will be from the employer. This will rise to a total contribution of 8% on 1 October 2018 when the employer’s contribution must be at least 3%.


PayrollProfessional 41


SMEs think they will struggle with the burden of both administration and employer contribution costs. Over a quarter believe they may have to reduce pay growth, with 22% expecting to initiate a pay freeze to cope with the changes. With all this in mind, our advice to


SMEs is to plan well in advance for auto- enrolment duties and, where necessary, seek professional advice in order to make the best possible decisions for businesses and workforce. It is also important to ensure full compliance with the legislation to avoid heavy financial penalties.


PP


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