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Workplace pensions – there’s no need to miss your staging date…!
Recent research by Aviva has shown that one in seven companies who set up pensions with Aviva in the last quarter of 2016 actually missed their deadline, or Staging Date, for setting up a workplace pension. By my calculations, that means on average around 15% of businesses aren’t complying with their legal duties on time and are very likely to receive a fine from The Pensions Regulator. This is just money down the drain for a small business, and so easy to avoid if confronted early on.
The Pensions Regulator is sensibly recommending that companies set up their schemes around 6 months in advance of their deadline, which is good advice, because 2017 is by far the busiest year for pension providers, with 750,000 companies being allocated a staging date. Some providers may have a long waiting list this year, and any delays in setting up your scheme may lead to a failure in meeting your deadline and a subsequent fine – no excuses.
I suspect that companies are leaving their workplace pensions on the ‘to-do’ pile until the last minute, and then they find that choosing and setting up their scheme, if done properly with thought and consideration for a good employee outcome, takes a lot longer than they thought.
But this doesn’t surprise me – I’m a small business owner myself – and I can certainly sympathise. Small businesses are often stretched to capacity, and it’s likely that the responsibility for workplace pensions will fall on the director or business owner, who tends to be the busiest of the bunch! This is where professional advisers come into their own, because they’ve done all of the research beforehand, and if they specialise in workplace pensions then their knowledge and experience will be a great timesaver.
So what if you do miss your staging date? Well, it’s a legal deadline, there’s no getting around it, so there are repercussions for your business. If you’re within 6 weeks of your staging date then you should issue statutory postponement letters straight away, set up your scheme and enrol your employees within 3 months of staging.
If your staging date was more than 6 weeks ago then you can’t apply postponement and things get a bit more complicated. You’ll need to set up your scheme straight away and work out the contributions that should have been paid into the scheme since your staging date, and it’s likely that the company will also have to pay the backdated employee contributions too.
Towards the end of last year The Pensions Regulator confirmed that there had been a staggering rise in penalties for small businesses for non compliance, with more that 20 times more businesses getting an escalating penalty notice than in earlier quarters. An escalating penalty notice imposes a daily fine of between £500 and £10,000 a day, so best to be avoided!
If you’re getting close to your staging date and haven’t had time to sort out your workplace pension, we can turn things round quickly and easily, taking the pressure off you. We’re here to make sure that you choose a quality scheme and we’ll help you to design your scheme to keep costs and administration to a minimum.
If you need help, please call Sarah or Adele on 0800 160 1233 or fill in the Get Started page on our website and we’ll get back to you straight away.
We do seem to have become the ‘go to’ company for companies that have missed their staging date, so I thought it would be useful to run through a recent case study, just I case you’ve missed yours…
A client, let’s call him Tom, called us a couple of weeks ago and confessed that his staging date was 1st August 2016, and he’d done nothing so far. He’d contacted a couple of other workplace pension companies but they weren’t interested in helping him because he’d missed his staging date, so he was quite relieved when we said of course we can help.
The first thing we advised Tom to do was call The Pensions Regulator to explain that he had missed his staging date but he was working with us to get his scheme set up in the next few days and put things right. Doing this will actually reduce the chance of a fine.
Secondly, we needed to obtain payroll reports from Tom showing his employees’ gross earnings since 1st August last year. His payroll lady emailed the reports over to us the next day and we calculated the backdated employer and employee contributions from last August until the most recent payroll run. We confirmed to Tom that he would be liable to pay all of these backdated contributions, rather than asking employees to pay theirs, but as he only had a couple employees the backdated contributions came to about £150.
We advised Tom about tax relief, postponement and the most cost effective pensionable salary and contribution combination for his business and we set up his scheme with NEST within 3 days of his initial contact with us. We also spoke to his payroll lady and gave her everything she needed to set the scheme up correctly on her payroll software, and we checked the first set of contributions calculated, just to make sure.
Tom needed to be responsible for uploading weekly pension contributions onto the NEST portal because his payroll lady wouldn’t do this for him, so we did the first contribution upload for him to save time, and then we provided him with training so that he could do this himself going forwards. We gave Tom guidance on completing his Declaration of Compliance and made sure he did this as soon as his scheme was in place.
So within a matter of days, and very little drama, Tom was compliant and up and running with his pension arrangements.
So if you need help with setting up your workplace pension please get in touch. If you’ve found this article useful please like our Fb page @autoenrolmentbureau and follow us on twitter @aebureau.
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.
You actually have a couple of options – either do some fairly extensive research yourself and set up your own scheme with an online DIY solution - you’ll need to choose your scheme very carefully - or you can ask a specialist like us to do the job for you. If you don’t know anything about pensions it’s really difficult to know which route to go down, so I thought I’d just outline very briefly what you’d need to do if you do decide to DIY.
First of all you need to choose your scheme – there are well over 100 pension providers to choose from. Make sure you choose a scheme that’s approved by The Pensions Regulator or the FCA, and if you’re choosing a master trust then make sure it meets the Master Trust Assurance Framework set out by the Regulator, otherwise it could encounter serious problems when the Pensions Bill comes into force this year.
Compare scheme costs – employee charges, employer charges, contribution charges and administration charges. These can be quite hard to pin down as providers don’t always make them obvious on their website, but there will definitely be costs involved. Make sure you’re clear on what the costs are to you and your employees before you choose your scheme.
Look at investment performance and compare performance of each scheme over the last 3 years – has investment growth been slow and steady, or more risky and erratic?
You’ll need to design your scheme in terms of tax relief basis for employee contributions, postponement policy, salary and contribution combinations (which directly affect the contribution rates you’ll need to pay) and auto-enrolment pay reference periods. You’ll also need to make sure that your pension scheme integrates smoothly with your payroll software. Designing your scheme properly at the outset will save your business an awful lot of money in the long run.
It’s a good idea to provide your employees with clear and comprehensive communications about the benefits of your chosen pension provider so that they understand the value of the pension scheme you’re providing, and you’ll need to update your employment contracts and, if you have them, your staff handbooks.
It’s really important that you understand the processes behind auto-enrolment so that you know exactly who is responsible for each process. For example, who will be carrying out employee assessments each pay period, who calculates employer and employee contributions, who is responsible for producing and issuing statutory employee letters, who will be uploading a contribution file to your pension provider each week or month and who is going to deal with opt-ins, opt-outs and contribution refunds. You payroll administrator may offer to carry out these tasks on your behalf, but they may only choose to do some of this administration, in which case you need to pick up the rest.
One of the most critical things to get right is to provide your payroll administrator with clear instructions about how to administer your scheme through their payroll software. They will need to know how you’ve designed your scheme and who you’ve chosen.
If you don’t have the time to do all of this yourself, we can do it for you! We’re qualified workplace pension specialists and we’ll make sure you get it right first time. We charge a one-off fixed fee which is dependent upon the size of your business, and we’re happy to continue answering any questions you may have for the foreseeable future too, at no extra cost.
If you’d like to take the pressure off yourself and appoint a trusted, specialist company to help you instead, please give me or Adele Webb a call on 0800 160 1233, or fill in your details on our Get Started page and we’ll get back to you.
Whether you’re a fast-growing business, or one that’s been around for donkey’s years, if you have one or more eligible employees paid through a PAYE scheme then you’ll need a workplace pension. If your business has been set up since April 2012, then the deadline for setting up your pension scheme will be some time after May 2017, but if your business was established before April 2012 your staging date will be within the next 12 months..! If you haven’t thought about it yet, now is the time to start planning.
There’s been much talk recently about the new Lifetime ISAs, or ‘LISAs’, which the Government plans to introduce from April 2017. LISAs can only be set up for individuals aged under 40 and their main purpose is to provide a tax efficient savings fund with which to buy your first property. Each year, up to age 50, you can pay up to £4,000 into a LISA and, for each £4 paid in, you’ll receive a £1 bonus from the Government. You can draw on the fund tax-free before age 60 to purchase a first property costing no more than £450,000.
Many in the pensions world are wondering why the Government is introducing the LISA whilst auto-enrolment is in full swing – will employees opt out of their pension scheme and set up a LISA instead? I, for one, doubt it. A workplace pension and a LISA are very different beasts and there is clearly a demand for both. People will naturally have different savings priorities over their lifetime.
A quick comparison of each form of saving reveals that, based on the same employee contribution, a workplace pension will provide you with a higher income to draw down on in later life, even accounting for the fact that some of your pension income is taxable, whereas LISA income is tax free. This is largely because of the compulsory employer contribution required for a workplace pension and the tax relief that you receive on your own contribution.
Of course, you won’t be able to access your pension until you reach age 55, so youngsters must approach pension saving as a long term commitment. But if you decide not to use your LISA for a property purchase and want to cash it in, there is an expensive 5% penalty charge to pay and you’ll lose the 25% bonus you’ve received from the Government. So pro’s and cons of each.
Workplace pensions and LISAs should co-exist quite happily as long as employees are well informed and make the right choice for them.
Getting the right advice about workplace pensions is important for employers and employees alike. If you would like to talk through your circumstances with an auto-enrolment expert, 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/
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!
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"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