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Not necessarily. Workplace pensions have a limit on how much they can charge employees (the ‘Annual Management Charge’) of 0.75%, and many old policies charge more than this, which means they can’t be used for workplace pensions. And the provider may not allow the policy to be used as a workplace pension. If it doesn’t meet the workplace pensions ‘qualifying criteria’ then the old scheme, however generous, must be closed down and a new compliant workplace pension scheme must be set up before your deadline. ‘I’ve checked, and none of my staff are interested in joining a workplace pension, so I’m not setting one up...’
This could get you into big trouble with The Pensions Regulator! If you have eligible employees aged between 22 and state pension age who earn over £10,000 a year, then you must enrol them into a workplace pension, whether they like it or not. And staff who fall outside of these age and earnings criteria have a right to opt into a pension scheme if they want to, unless their earnings are very low. Once enrolled, employees need to read the pension provider’s welcome pack and it’s only then that an employee can make an informed decision as to whether to opt out of the scheme. ‘I don’t need to do anything about this until 3 months after my deadline, or Staging Date, because I can postpone enrolment for 3 months, so I’ll worry about it then.’
We’ve helped many employers who have fallen foul of this one. If you’re planning to implement postponement for 3 months from your Staging Date it’s a legal requirement that you notify your staff of this by way of a written postponement notice, within 6 weeks of your Staging Date. If you haven’t issued this legal notice to your staff then you can’t postpone, and contributions are due from your Staging Date onwards. The sting in the tail is that employer will have to pay not only their own backdated employer contributions but also the employee’s backdated contributions. ‘I have less than 5 staff, so I’m not affected…’
This myth comes from the old Stakeholder pension legislation, which hasn’t applied since 2012. Workplace pensions are the law for businesses with one eligible employee or more.‘I’m not complying, and nobody will ever know…!’
Unfortunately, The Pensions Regulator has a direct line to HMRC and they receive regular updates about the employees you pay and how much they earn. Alarm bells won’t ring at the Regulator’s office until 5 months after your staging date, when they expect to have received your declaration to confirm you’ve set up your scheme. If a declaration is not sent to the Regulator, this will trigger an investigation.So what are the repercussions of non-compliance? A straightforward breach, such as forgetting to complete your declaration of compliance in time, can result in a fine of £400, but if you’ve blatantly ignored the law then the fines are eye-watering, at £500-£1,000 a day for a small business, rising to £10,000 a day for larger businesses. Swindon Town FC was in the headlines in 2016, having been fined over £20,000 for failing to meet their duties. There are quite a few online do-it-yourself pension solutions out there, many of which don’t offer you a choice of pension scheme or publicise their fees and charges until you sign up. Some pension schemes will charge a set-up fee, others an ongoing fee. Some schemes are cheap for the employer to set up but have high charges for employees going forwards. It’s a bit of a minefield. Business owners must be able to justify their choice of scheme to their employees if challenged, but unless they fully understand what they’re signing up to, then how can they?Our Bespoke, FastTrack and Simply Conform solutions are tailored to suit any size of business and are aimed at business owners who would rather not do it themselves. We’re independent of any one pension provider so we can help you to choose the right scheme for your staff and your budget. And we do it all for you to save you time, ensure compliance, and get the right messages out to your employees. We can also help out on the payroll side as we run a busy payroll bureau – our pensions knowledge certainly comes in handy here!If you would like to talk through your circumstances with an auto-enrolment expert, please give us a call on 0800 160 1233 or email firstname.lastname@example.org . We’ve got lots of useful information and guidance on our website if you need it: http://www.aefasttrack.com/
We’ve had an exceptionally busy week last week, including advising and supporting three companies who had missed their staging dates for auto-enrolment. So we have a topical blog this week in which I would like to explain the consequences of late compliance.
Nobody used to talk about pensions much… how things have changed! Anyone who runs a business nowadays will have to get to grips with pensions very soon, and most will already have had a reminder from The Pensions Regulator telling them that they’ve got to set up one of these new-fangled workplace pension schemes if you employ one or more eligible employee. ‘Don’t ignore the workplace pension!’ says Workie, the government’s new and friendly blue and purple pensions monitor.
‘But none of my staff will want to join a pension scheme…’ I hear you say! This might be wishful thinking, because statistics show that around 90% of staff are staying in their workplace pension scheme rather than opting out.
What an employer might not realise is that they still have to set up a pension scheme, whether or not their eligible employees decide to opt out of it – there’s no getting around it. People basically have to be ‘in’ before they can opt out of the scheme. Employees don’t have to do anything to be in (that’s the automatic bit), but they do have to fill in a form to opt out. So is it apathy that’s leading to high levels of take up, or are employees really happy to be in?
Being an optimistic pensions geek, I’d like to think it’s the latter. Employees are getting a very good deal out of their workplace pensions. Fund charges are low, and not only do they get free money from their employer through compulsory employer contributions, they also get full tax relief on their own pension contributions. Then there’s the tax relief they receive on investment returns, and 25% tax free cash at retirement. And you can do so much more with your pension these days, including cashing it all in at once, or taking it bit by bit.
It’s not just good news for the employee – the employer gets tax relief too as their contributions can be deducted as an expense, reducing the amount of taxable profit. And a good pension scheme will help to attract and retain the right sort of people.
The difficult bit is getting these positive messages across to employees so that opt out rates stay low. The loss of the state second pension (S2P) next year will hit youngsters hard, and if they want to retire on more than just the basic state pension then they’d better start saving now!
I met a lovely chap this week, he was a doctor and I had met with him to talk about a workplace pension for his team of medical secretaries.
Whilst we were chatting, he mentioned that he, like many other GPs and consultants, employed his wife as an administrator. His accountant had advised him that this would be beneficial for tax purposes. What he hadn’t realised, was that because he paid his wife more than £10,000 a year, he would also need to set up a workplace pension for her.
As this arrangement had been in place for sometime (before April 2012), his Staging Date, the date by which he has to set up a pension scheme, could be anywhere between 1 June last year and 1 April 2017, depending on his PAYE reference.
This doctor has the same duties to his wife as a traditional business, such as coffee shop or estate agent, with employees. He must set up a workplace pension scheme enrol his wife, deduct pension contributions from her pay and pay employer contributions on top of her salary.
If he fails in this duty, then The Pensions Regulator has the power to levy some pretty hefty fines.
Hopefully, I made him aware in time, and his staging date hasn’t yet passed, but I’m still waiting to hear.
Even if his wife earned less than £10,000 a year, he would still need to take some action. See my earlier blog “I don’t think any of my staff are eligible for Auto-Enrolment, do I need to do anything?”
If you think you might need to set up a scheme, or would like to talk through your circumstances, please give us a call on 0800 160 1233. We’ve got lots of useful information and guidance on our website if you need it:http://www.aefasttrack.com/
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What do our customers think..?
"We wanted to embrace Auto-Enrolment to get good pensions in place for our team early. We interviewed a couple of companies to assist us, and Sarah gave a very good case for her company. We are confident that we made the right decision! From selecting the right provider, through to setting up the systems and even presenting to our staff, Sarah and her team were excellent. I don't hesitate recommending the Auto-Enrolment Bureau to anyone looking to enrol their company. My only words of advice are, do it early!"
Richard Hardstaff, Director, Polydron (UK) Ltd