Reality – by April 2017 every single employer in the UK must have a Workplace Pension scheme in place and automatically enrolling their staff in to their scheme and making contributions on their behalf.
So why is it that some employers still believe their staging date is a long way off or worse still auto enrolment doesn’t affect them? What myths and legends could possibly be distorting the facts?
We are currently advising employers to start testing their data, select an appropriate scheme, forecast costs and set their mid to long term budgets up to two years before their staging dates. You may be a small business, but you really should understand how much it is going to cost your organisation at the very minimum.
So what about you? Are you auto enrolment ready? Or are you believing the myths and legends of Workplace Pension lore?
Auto Enrolment Lore: 5 Myths revealed
Myth 1. Auto enrolment doesn’t affect employers with less than five members of staff.
Reality: Starting from October 2012 all employers (with one worker or more) will have to comply with the new law and automatically enrol all eligible workers into a qualifying workplace pension scheme.
Myth 2. You can make it easier for yourself by not offering a workplace pension to your employees
Reality: All employers must comply with the new law. Automatic enrolment will be rolled out
from October 2012, starting with the largest employers. Employers must not:
• discriminate in favour of job applicants who indicate they are prepared to opt out;
• encourage workers to opt out of a qualifying pension scheme; or
• treat a worker unfairly or put them at a disadvantage because of automatic
Myth 3. Auto enrolment is a one off admin exercise and then it will all fizzle out.
Reality: Qualifying employees and those who choose to self opt-in or opt-out will need managing at each pay period going forward from your staging date. You must maintain records to prove compliance. You must continue to automatically enrol/ monitor and communicate with workers and your pension scheme provider and are legally responsible for your ongoing workplace pension scheme provision.
Myth 4. The DWP/Inland Revenue/pension provider/payroll provider/payroll software company/my accountant will do all of this for me.
Reality: There isn’t a coordinated central ‘hand-holding‘ process to make sure employers are ready come their staging date. All employers are responsible for sourcing and setting up their appropriate pension schemes and notifying their employees of the chosen schemes in advance.
Worryingly, many existing company pension schemes are not automatic enrolment compliant. Qualifying schemes will have been awarded a EPSR code. Worryingly, some pension providers are:
- closing existing schemes
- refusing to assist organisations if not approached a minimum of six months before their staging stage
- Increasing their scheme charges as market demand increases
- Refusing to accept minimum contributions from low paid earners
- Unable to meet employee requirements such as Shariah Law, cash out, or ethical funds.
From the first pay run after your staging date, automatic enrolment must take place and your schemes must be in place prior to this date.
Myth 5. Auto enrolment will not cost my business anything, because it’s only my employees who will contribute.
Reality: Broadly and loosely speaking by 2017 employers may find themselves contributing approximately 3% of their monthly/weekly payroll bill into their workplace pension scheme – alongside their employees contributions.
An example for a business that has 20 employees:
- 5 earn £10,000 each
- 10 earn £20,000 each
- 3 earn £40,000 each
- 2 earn £60,000 each
It is likely an employer’s annual payroll costs will rise by £12,000!
Have you calculated how much auto enrolment will cost you?
As a dedicated and specialist payroll provider we are here to help you plan your workplace pension project. If you would like to receive an auto enrolment costs consultation for your organisation, please do get in touch.
Call us now on 0117 9328145 for confidential advice and a listening ear.