Auto Enrolment is the new legislation regarding workplace pensions. It affects both employers and employees, so you don’t have to be in business to need to know about this. The legislation means that employers are now obliged to provide workplace pensions for the employees, and depending on earnings and age, they must automatically enrol employees into the pension scheme whether the employee wants to be in it or not.
Are you an employee?
What does it mean for you? If you earn over £10,000 per annum and are 22 or over and under state retirement age then your employer will start deducting pension from your wages. You will then receive a welcome pack from the pension company. If you don’t want to be in the pension scheme then you have 1 month to opt out of it and get your money back, but be warned; if you don’t opt out within the month then your money is invested and you won’t get it back until you retire.
Should I stay in or opt out? That depends on your personal circumstances and the answer would be different for everyone. To assess that properly we would recommend you talk to a financial advisor who is regulated by the Financial Conduct Authority and is legally allowed to give you advice. Thornton or Rachel at Orchid Financial Services would be happy to talk to anyone who is considering whether this is a good investment or not. However, a question I would suggest people ask themselves is ‘Is a combined total of 2% of my salary enough for a pension’. According to a survey carried out by Which? magazine, if you start saving at 35 for retirement at 68 you need to squirrel away around £215 per month for a retirement income of £15,000, which includes state pension, and £654 per month for a retirement income of £30,000 (https://conversation.which.co.uk/money/monthly-pension-contributions-saving-for-retirement/).
Scary thoughts!
Are you an employer?
What does it mean for you? There is more onus on the employer to get this right. It is important not to ignore letters from the Pensions Regulator as they will fine you if you get it wrong. Talk to your accountant and make sure they have it in hand for you. Many accountants are not even offering an auto enrolment service in which case come and talk to us. We have a full service available including auto enrolment available to current and prospective clients. It doesn’t need to be a daunting task.
What needs to be done? In a nutshell, you need to set up pension scheme, write to your employees using specific templates and at the right times, assess your employees for eligibility, deduct pension where necessary, report to the pension company and pay the contributions and complete a declaration of compliance. You’ll also need to manage opt ins and opt outs and continue assessing employees every time you pay them. And the icing on the cake is that you’ve enjoyed the process so much the Pensions Regulator are going to make you go through the whole process again every 3 years. That’s why it makes sense to let your accountant deal with all this. The price for getting it wrong can be hefty.
What pension scheme do I choose? There are many options available to you on the open market. We’re working with Orchid Financial Services to bring pension options to the table for our clients and we can even arrange pensions for non-clients. So please call us if you’re looking for options.
What next? Auto enrolment is a huge subject and what I’ve written about above is written in a general sense. There are of course exceptions, and there are circumstances where people don’t need to be enrolled, but the majority should expect to see what’s described here.
If you’re looking for more information on auto enrolment, making tax digital or any other accountancy matter, whether you’re an employee, an employer or an agent, then please comment below or private message us at our Coates Business Services page and we’ll be happy to help where we can.
Alternatively, you can email us at pensions@paymystaff.co.uk.
Matthew Coates
