Rudyard Kipling's guide to pensions auto-enrolment
What every business needs to know

I keep six honest serving-men, (They taught me all I knew);
Their names are What and Why and When
And How and Where and Who.

(From ‘I Keep Six Honest Serving Men’)

Whether Kipling intended his poem to be used as a summary guide for the single biggest piece of UK pensions legislation to hit the statute books in a generation is unlikely but its framework lends itself well to this introductory guide which will impact every UK employer over the coming months and years. Future articles will provide further detail of every issue raised here.

What is auto-enrolment?
A change of legislation which requires employers to automatically enrol eligible workers into a company sponsored pension scheme to which both employer and employee must pay monthly contributions, facilitated by the employer. Not having a pension scheme or simply offering membership to employees will no longer be allowed. Employees are subsequently able to ‘opt-out’ of the arrangement though there are strict rules concerning that process.

Why has it been introduced?
Government is concerned by the low levels of retirement funding by UK workers and the State’s inability to provide more than a basic retirement income. It sees the main barrier preventing employees from saving for retirement as apathy so has placed new responsibilities on employers to make access to a pension scheme quick, simple and affordable.

When will it affect my business?
All businesses are likely to be affected by the new legislation, companies will be sent a ‘staging date’ on which employees must be enrolled to a pension scheme. This process began in October 2012 with the largest employers and continues until 2017 with the majority of SME’s being given a date in 2015 or early 2016.

How much will it cost?
Ultimately employers are expected to contribute at least 3% of total employee earnings between £5,824-£42.385pa (2015/16 levels) with employees also contributing 4% with 1% added in the form of income tax relief. This provides employees with a total pension contribution of 8% of band earnings. The actual definitions and thresholds are a little more complicated than outlined here and will be covered in a later article. Employers are able to pay lower contributions until October 2017 if they would prefer to phase in the new contribution levels. Lower contribution levels must also comply with clear guidance from The Pensions Regulator.

Where can I get help?
The first businesses through the auto-enrolment process say that it has taken up to 12 months to plan and implement the necessary changes to comply with the legislation and, in most cases, professional advice and guidance has been essential. Numbers and Chartered Financial Planners, Hase Osborne are working together to provide a range of services to support local businesses manage auto-enrolment.

Who is included?
The core group of employees who must be auto-enrolled are:

  • Age 22-State Pension Age
  • Earning more than £10,000pa
  • Normally based in the UK
But special rules and entitlements apply to every employee and employers need to be aware of these.

In a future article, we will explore the ‘Who?’ and the ‘How Much’? in more detail. What levels of contribution must be paid for which employees and what options do you have?

For further information or to schedule a meeting please get in touch.

Article by Joe Walsh, Director of Hase Osborne Asset Management. Joe is a Chartered Financial Planner and Fellow of the Personal Financial Society. For more information and contact details visit www.haseosborne.co.uk

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