Auto enrolment pensions and my business

Fiona Armitage - Tuesday, February 16, 2016

A survey by Sage found that two thirds of small businesses do not currently offer an auto enrolment pension scheme to their employees. If you are one of these employers, you may not be aware of the need to set up auto enrolment pensions for your staff before your staging date.

auto enrolment pensions

Based on our experience with clients, the impact of setting up and running auto enrolment pensions on your business can be bigger than expected. Here are some of the implications of auto enrolment to take into account.

Impact of auto enrolment pensions on your business

1. How will this affect my cash flow?

Over half of the small businesses surveyed by Sage were concerned about the impact of paying pension contributions on their cash flow. Auto enrolment pension contributions start at 1% for the employer and build to a minimum of 3% by April 2018. It is important to factor this increase in staffing costs into your budgets. If you were a payroll client of ours we would advise you on different pension set up/tiers. This would allow you to base your pension decisions on accurate figures from your payroll.

Don’t assume that your employees will opt out of the scheme as government figures show that the drop-out rate for 2014 was only around 12%. If you think that you will encourage your staff to opt out, please note that employers can be fined and prosecuted for attempting to encourage their employees to opt out of auto enrolment pensions.

2. What about the cost of setting up my auto enrolment pensions?

Pension providers charge to set up your new pension scheme. Pension providers charge a monthly fee and others charge an upfront one-off fee to set this up. We can set up your pension scheme with the provider at a reduced cost, thereby saving you money.

Some clients, who already make contributions to employees’ pensions are often shocked to find out that the current pension scheme is not compliant with auto enrolment pensions. This may be the case even where the pension is a qualifying scheme. There is then a charge, often quite steep, by the pension provider to transfer the existing scheme to an auto enrolment compliant scheme. In these incidences, we have advised our clients on more cost-effective ways of meeting their duties.

3. How much time will I need to spend on auto enrolment admin?

Every time you run your payroll (whether weekly or monthly) you are required to send and receive information from the pension provider to ensure that the correct pension contributions are made. This becomes more difficult to calculate if you have variable pay each period such as overtime, bonuses and shift patterns. You also need to monitor opt ins and opt outs, remember to re-enrol staff who have opted out every three years and certify the scheme every year. Don’t forget that you have an employer duty to communicate to your staff about auto enrolment pensions. Statutory letters must be issued to entitled, non-entitled and eligible workers and staff who have had their auto enrolment postponed. Of course, you need to understand these terms to ensure you send out the correct communications.

This extends the time it takes to process payroll and increases the administrative burden. You are expected to keep an audit trail of pension payments to comply the Pensions Regulator’s rules.

auto enrolment pensions

One way to reduce the admin burden is to outsource this work to us at Critchleys HR & Payroll. We can handle all of the administration for auto enrolment pensions through our payroll software which frees up your time for more exciting tasks!

4. What is the cost of getting it wrong?

Unfortunately, the Pensions Regulator is not taking any prisoners. They say that if you haven’t understood your duties they will work with you to ensure compliance. However, if you have chosen to ignore your duties, they will use their powers. These include issuing penalty notices which start at £400 and increase by £50 to £10,000 per day depending on the size of your workforce.

Finally, employers can be taken through the civil courts and could be prosecuted for failure to comply.

How can we help you?

We can help you with all of the above with the exception of financing your pension contributions!

Through our auto enrolment pensions service, we will:

- advise you on your employer duties

- set up your pension in the most cost-effective way

- advise on how much your set up is likely to cost in employer contributions

- provide statutory communications to all workers

- carry out the administration of your pension scheme every pay run

- ensure you are compliant with the Pension Regulators’ rules

- complete your declaration of compliance to the Pensions Regulator

More information on our auto enrolment pensions can be downloaded here. Alternatively, we are running complimentary seminars every month so that we can give you a more in-depth understanding of your duties and answer your specific questions. Find out more by clicking here.

Contact Details

Critchleys HR and Payroll LLP, Beaver House, 23-38 Hythe Bridge Street, Oxford OX1 2EP


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01865 261188

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