4th February 2016
Even those who have been burying their head in the sands will now be realising that they cannot put off thinking about their workplace pension (‘auto-enrolment’) obligations for much longer, as most employers will be required to fulfil their obligations and have an appropriate scheme in place within the next 12–18 months.
We have found that there is a lot of confusion amongst employers and employees about the requirements and in particular that it is not a straightforward ‘matching’ system. Whilst initially/currently employers and employees each have to contribute 1% (unless the employer agrees to contribute the employee’s 1%), if an employee chooses to contribute more there is no obligation for the employer to increase their contributions. Conversely if the employee doesn’t want to make their 1% contribution they have to opt out and the employer doesn’t have to make any contributions. Critically, the employer must not in any way suggest to employees they opt out – this is a legal offence for which penalties can be charged.
As you may be aware the required contributions will then increase to a minimum total 5% (2% employer and 3% employee) and then 8% (3% employer and 5% employee). These changes were due to come in 2017 and 2018. However, it is proposed that these dates should be pushed back as set out below.
|Date||Employer minimum contribution||Total minimum contribution|
|Employer's staging date to *05/04/18||1%||2% (including 1% staff contribution)|
|06/04/18 — 05/04/19||2%||5% (including 3% staff contribution)|
|06/04/19 onwards||3%||8% (including 5% staff contribution|
The 2018 and 2019 ‘step-up’ dates are awaiting approval by Parliament but hopefully this will give businesses a little more time to prepare for the impact this will have on profits and cashflow.
However, what is not changing is the date at which businesses must have their pension schemes in place. Some employers are leaving it to the last minute at which point it becomes a rush to get everything ready and we recommend that employers start the process no later than 6 months before their staging date. For the avoidance of doubt, you don’t have to start contributing any earlier it just means the formalities are completed and the scheme is ready to be activated at the staging date. We can assist you in putting a pension scheme in place so please get in touch with Simon (firstname.lastname@example.org) or Becky (email@example.com) if you would like to discuss.