Auto-enrolment delayed: Pension options for small businesses

12 February 2012

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The Government has announced that it will postpone the compulsory auto enrolment of employees into a pension scheme until 2017 for those businesses with the fewest employees. In this article, we update you on the new schedule and remind you of what your current legal requirements and options are for providing a pension scheme.

What's changed?

Under the Pensions Act 2008, from 2012 employers will be required to automatically enrol eligible employees into a qualifying workplace pension arrangement. However, the introduction of auto-enrolment is going to be staggered so that businesses with the fewest employees are affected last.

This had been expected to take place in 2013-2014, but the Department of Work and Pensions recently announced that smaller firms would be given from 2014-2017, depending on the number of qualifying employees. The new schedule for auto-enrolment for small and medium-sized firms is outlined below:

No. of qualifying employees	Date
50-249	1 April 2014 – 1 April 2015
30-249	1 August 2015 – 1 October 2015
< 30	1 January 2016 – 1 April 2017

From these dates, employers will have to:

choose a qualifying pension scheme or schemes
automatically enrol eligible workers into a scheme
make a minimum 3% contribution towards a qualifying contribution scheme or NEST (the National Employment Savings Trust)
register with the Pensions Regulator
provide workers with information about the changes and how it will affect them.

Our advice to small businesses has been to prepare for the pension changes well in advance by being aware of their staging date, assessing which workers may be involved and budgeting for these changes. It may be beneficial to introduce the changes in stages, by creating a pension scheme before the changes take place by following the steps below.

What are my current legal obligations?

If you have five or more employees, then you have to make a stakeholder pension arrangement available to them, but you do not have to enforce it. You do not currently have to contribute to the pension, but this will change as described above.

Benefits of providing a pension scheme

Running a pension scheme can have benefits for small business employers, such as boosting staff morale and helping to recruit and retain employees.

From a financial viewpoint, your employer contributions to any pension scheme qualify for corporation tax relief and employee contributions will be eligible for income tax relief.

Types of pensions

Occupational pension schemes – these are private pension schemes run by employers, also known as a works or company pension.

Money purchase pension schemes – contributions made by employer and employee are invested in the stock market. However, as share prices are subject to change, pensions can fall in value, making this a riskier option.

Personal pensions – these are private pensions that receive certain tax advantages. Staff can take out a personal pension under a contract with a pension provider and contribute to it themselves. Employers can contribute too, if they wish.

Stakeholder pensions – this is a type of personal pension that is run by a third party company. They are a popular choice for small businesses, because they don't have to manage the scheme themselves.

How do I set up a pension scheme?

The best place to start is by finding an Independent Financial Adviser (IFA), who will be able to suggest the most suitable options to your business and explain the steps you need to take to set up a scheme. Free, impartial advice is also available through the Pensions Advisory Service.

Intermediate and Advanced members of the Forum can call our helpline on 0845 130 1722 for further advice and support.