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Auto-enrolment, are you ready?


Auto-enrolment is a new Government initiative that aims to help solve the pension crisis in this country, but it is likely to impose a disproportionate burden on smaller businesses where a heavy reliance on labour is often the order of the day.


Steve Woodham, Pensions Consultancy Manager


The aim of the new scheme is to encourage employees who are not saving for retirement to start to build up a significant pension pot, but for employers, especially those with significant staff numbers, it is a whole lot of responsibility and cost.


Not only will employers have to automatically enrol people, but, when the scheme is fully up and running, they will also have to make an employer contribution equivalent to 3% of an employees’ wages into their pot.


What is auto enrolment?


All workers between the age of 22 and state pensionable age that earn more than the basic tax level (currently around £7,000 per annum) must automatically be enrolled into their employer’s qualifying pension scheme within three months of starting work.


At the moment, many workers fail to take up valuable pension benefits because they do not make an application to join their employer’s scheme.


Auto-enrolment is meant to overcome this as there is no action required from employees. After three months, employees have the right to opt out of the scheme, but then after three years the employer has to automatically re-enrol them again. The employee could opt out again then if they wished.


How will it affect my business?


Employers have a choice about which pension scheme they use; it could be NEST (the National Employment Savings Trust, a new low cost pension scheme being introduced in 2012) or any other qualifying defined benefit scheme, but whichever scheme is chosen, it must meet minimum standards in respect of the benefits it provides.


Although the official launch of auto-enrolment is 1 October 2012, individual employer’s duties in relation to the scheme can be introduced gradually over four years, based on the size of the employer. Minimum contribution levels will be phased in between October 2012 and October 2017.


What do I need to do?


With a dedicated pension consultancy team, Old Mill are ideally placed to help you understand the complexities of the new scheme and help advise on its implementation. If you would like to know more about when your business become liable for these new responsibilities and how they are going to affect you, please contact Steve Woodham of our Pensions Consultancy team on 01749 335027.


“Not only will employers have to automatically enrol people, but, when the scheme is fully up and running, they will also have to make an employer contribution equivalent to 3% of an employees’ wages into their pot.”


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