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Start preparing your business for pensions auto-enrolment

The Forum of Private Business looks at the pensions auto-enrolment scheme and what it means for your business.

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You may have seen the adverts on TV and in the newspapers publicising the new compulsory pension scheme being rolled out by government.

Small and medium-sized businesses won't be required to take part until between 2015 and 2017, depending on their number of employees, but should SMEs start preparing now?

The short answer is yes!

The scheme, which requires businesses to automatically enrol all staff into a pension, began its rollout in October 2012, starting with big businesses (it's their employees that are the target audience of the Department of Work and Pension's 'I'm In' ad campaign).

Despite SMEs not being affected for at least another two years, we've recently received reports that they're being pressured by payroll companies to start preparing (i.e. investing in payroll software) two years in advance.

Whilst this may be slightly premature, especially for businesses not affected until 2017, it is worth making some preparations now to prevent being caught out in the long run. What does it mean for businesses?

From your staging date (see below), you will have to automatically enrol all qualifying employees into a pension scheme, which you will have to make a contribution to. This will start off at 1%, rising to 2% from 1st October 2017 and 3% from 1st October 2018.

Other duties will include providing certain information to employees at the right time and removing people from the scheme if they choose to opt out.

Persuading workers to opt out is strictly prohibited.

What should I be doing now?

Find out when your staging date is We often get asked when businesses should start preparing, but it is best to work out when your staging date, understand your responsibilities and the impact that will have on your business, and then work back from there.

Your staging date is determined by the number of people in your largest PAYE scheme based on information held by HMRC on 1 April 2012.

If your number of employees has changed or is going to be changing, you may need to notify The Pensions Regulator.

You can find your staging date by using the Regulator's staging date calculator (you will need your PAYE reference for this).

Nominate a point of contact

To make sure all correspondence from the Regulator, including reminders, go to the right person within your organisation, you can nominate a preferred point of contact. The Regulator will write to you 12 months and three months ahead of your staging date.

Assess pension schemes

If you don't have a pension scheme, you may want to start assessing the options available to you. This includes the National Employment Savings Trust (NEST), set up for the specific purpose of ensuring that all employers (especially those with low to medium earners) can access pension savings.

NEST must accept all employers who apply. Alternatively, you can choose a private pension scheme.

You will need to contact schemes to understand their joining process and timescales involved. If you already have a pension scheme in place you will need to find out whether it will meet the requirements for auto-enrolment. For example, it shouldn't impose any barriers to joining, such as probationary periods, and any employees not currently in it would have to be automatically enrolled, unless they choose not to be. Read further guidance from the Regulator here.

Think about budgeting

The contributions you will need to make, increasing over three years, will be an added cost for your business if you don't already run a pensions scheme. It is therefore worth building this extra cost into any long-term financial projections.

Next steps

Before your staging date you must:

  • Find out how to enrol
  • Choose a pension scheme
  • Check that your payroll software will be able to deal with the changes
  • Change your processes to prepare the data to send to that scheme
  • Inform workers of pension scheme.

We will bring you more in depth guidance on these steps as they become relevant to SMEs, but our advice right now is to prepare as above; be aware of your staging date, assess which workers may be involved, review pension schemes and budget for the changes. We've put together a handy checklist which you can download here and then put up in your office to remind you what you need to do. 

Members can also download a guide to pensions auto-enrolment and get a free consultation and report tailored to their business.

For more information on the changes, members of the Forum can call our helpline on 0845 130 1722.