As an industry, we’re reliant on, and to some extent blinded by, data but often data doesn’t tell the whole story. There’s been much talk about the number of companies seemingly procrastinating over their auto-enrolment staging deadline with the statistics varying from between 20 per cent and 40 per cent of companies either leaving their staging date to within a month of the deadline or missing the deadline altogether.
It seems easy to berate these businesses and there are often some painful consequences that the businesses themselves face from the Pensions Regulator. Whilst we wouldn’t criticise this, as ultimately it’s the employee who loses out, we do empathise somewhat.
In our conversations with clients that appear to have, let’s say, a more ‘relaxed’ attitude to auto-enrolment, there are often genuinely valid reasons behind their actions. Let’s face it, the pensions world has undergone several guises, scandals and reforms over the last 20 years or so and smaller employers should be forgiven for at least a modicum of confusion.
This confusion has given rise to a few myths around auto-enrolment and might well explain the reasons behind some of these shortfalls.
Myth – I’m a small business and it’s yet another huge expense
Truth – Many small businesses trying to compete in a market against larger players already have a heavy cost burden with relatively small profit margins and auto-enrolment is seen as just another cost to their business. What many businesses don’t realise, however, is that setting up an auto-enrolment scheme isn’t always expensive. For as little as £15 pcm* companies, like ourselves, will set up and manage your auto-enrolment capability.
Myth – I only have one employee so auto enrolment doesn’t apply to my business
Truth – It’s understandable that some small businesses employing a handful of staff do not feel as though they have to offer AE. Indeed, under the old stakeholder pension regulation, this only applied to businesses employing five members of staff or more but the new AE legislation takes a very different tack. If you already have a pension scheme up and running, you will still have to ensure it meets the new AE rules.
Put simply, an eligible employee is one aged between 22 and State Pension Age and earning over £10,000 a year. And staff who fall outside of these age and earnings criteria have a right to opt into a pension scheme if they want to. As long as your company has one employee or more, implementing an AE scheme is NOT optional. The only caveat is if you are sole director with no employees.
Myth – I can postpone implementing AE for three months after the staging date
Truth – We’ve helped many companies that have simply put their auto-enrolment obligations off having been weighed down with day-to-day business activity.
This postponement rule is important and often misunderstood – Whilst you can postpone contributions into a scheme for up to three months, you MUST still have a scheme in place at your staging date – this isn’t negotiable. If you choose to postpone contributions, you MUST inform eligible employees within six weeks of the original staging date. If you fail to do so, the regulator might impose a fine and you may have to backdate not just YOUR contributions, but your employee/s too.
Myth – None of my employees have asked for a pension so I’ll just assume they don’t want one
Truth – Although this could well be the case, you are still legally required to offer an AE scheme and setting one up is NOT optional if you have employees – even if they eventually all choose to opt out. The caveat here is that employees need to have access to a scheme.
It is common and, arguably, logical that a company which finds its staff don’t want or intend to simply opt out of an auto enrolment scheme feels its obligations end there. Unfortunately, this isn’t the case and the regulator can issue large fines to firms not fulfilling their obligations.
If any companies identify with any of these scenarios and, more importantly, find that they have missed their staging date and have missed the six-week period required to invoke postponement, help is at hand!
Get in touch with the Pensions Regulator immediately – the quicker you get in touch (and depending on your situation) the better positioned you will be to avoid a fine.
Register with an AE provider – Be aware that not all pension providers allow you to set up a pension scheme if your staging date has already passed – we do!
Assess your employees and communicate with them – Any eligible employees need to be enrolled – we are here to help with that too.
Backdate any missed contributions – In order to become compliant, you will need to backdate contributions for all employees who are eligible or who have opted in.
Complete your declaration of compliance – your scheme provider can help with this but it’s important in order for you to become fully compliant – we do!
* fees can vary depending on the number of employees to be registered and the initial set-up fee chosen.
Garry Crackle at Opt.
Further reading on auto-enrolment
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