Employers must set up pension scheme for their staff

By Brian Kennedy

Have you heard of auto-enrolment?

This is the new or upcoming process, required of employers, to set up a pension scheme for eligible employees, and to enrol them in it.

Employees do have the right to opt out of the scheme again later - but under the law, they have to be put in at the start. Hence the ‘auto’ in

Auto-enrolment has been phased-in now since October 2012, and is due to be completed in 2017.

Each UK employer was allocated a ‘staging date’ by the legislation passed in 2007 and 2008. An employer’s staging date is their ‘go-live’ date for auto-enrolment, and all that it entails. It’s the day the new ongoing duties apply to them that require them to assess their employees at every pay period, and to commence an ongoing correspondence with their employees.

Larger employers were allocated the earlier staging dates and the smaller employers the later staging dates. In other words, the duties of staging are cascading down from large to middle-sized to small employers, and as of now, in mid-2015, we are about halfway through the process.

We are far from being halfway through the number of employers, however, as you can imagine. In fact, about half of the UK workforce work for a small number of large firms, and are already enrolled, and the other half work for a large number of small firms.

Between mid-2015 and the end of 2017 around 1.2 million smaller employers will reach their staging dates. If you’re a small employer 2017 may seem like a long way off, but auto-enrolment needs to be thought about now, as it is a process that can take up to 12 months to implement.

More to the point, there are already signs that the smaller you are as an employer, the more help you will need: between October 2014 and March this year, the Pensions Regulator issued 1,529 compliance notices and 17 unpaid contribution notices, a huge increase on the earlier period.

Why is this?

Larger companies are more likely to have had their own pension scheme already in place, with in-house personnel staff to manage the new requirements. Smaller companies are less likely to be prepared, and will have to create a pensions admin function from scratch, to handle the task.

Today we are just over halfway through that roll-out process. If you are the owner or an employee of a company that has 50 or less employees, your company will be getting to grips with auto-enrolment over the coming two years.

There are a number of specific issues and failings among smaller companies – the so-called ‘micro-employers’ - that have been getting them into hot water with the Regulator. Tick the following paragraphs, if those apply to you.

The most common problem is possibly complacency, not taking enough time to prepare.

Some companies which do have an existing pension scheme have found that it cannot be used for auto-enrolment, despite the fact that their contribution levels are above the minimum requirement.

Some companies discover that contract workers, even if they also work for other employers, are required to be included in their scheme.

The issue of the ‘opt-out’ is also a thorny one – some companies issue their employees with opt-out forms. This is frowned upon by the Regulator, as it borders on encouraging opting out of the scheme, which is not allowed.

This is why the number of non-compliance notices has rocketed – and will certainly continue to do so. Employers can short-circuit the whole auto-enrolment process by taking advantage of quality independent advice from us, through our comprehensive set-up programme. Better safe than sorry!

This article does not constitute financial advice. Brian Kennedy is a chartered independent financial adviser within Priory Financial Planning Ltd., and can be contacted on 028 9042 5025 or brian@prioryfinancial.com. Priory Financial Planning Ltd is an Appointed Representative of TenetConnect Ltd which is authorised and regulated by the Financial Conduct Authority (FCA)