How to make sure your scheme (and staff) are Auto-Enrolment ready
David Pugh of RM2 Client Foster Denovo asks: are your pension schemes and more importantly your staff, ready for auto-enrolment?
Do you know your AE Day? That's the 'staging date' on which, by law, you must start deducting pension contributions from your employees' pay packets and adding an employer contribution of your own.
If you employee more than 50 people the day will be 3 years away or less. The largest employers start the process in October next year and all companies will be at it by the beginning of 2016.
All employees earning over £7,475 (2011/12) and aged between 22 and state pension age are included. Even those outside this range can request you contribute on their behalf as long as they are earning over the NI threshold (5,715 in 2010/11).
If you have an existing scheme will you need to make any changes to comply with the new rules?
The independent review of auto-enrolment in November last year has made this simpler to assess for defined contribution schemes. Rather than base pension contributions on band earnings (£5,715 to £38,185) you can now ensure your scheme qualifies if the minimum contribution is 9% of basic salary, with at least 4% coming from you as an employer contribution.
You can reduce the employer contribution to 3% if your definition of pensionable pay is at least 85% of total pay and the employee contribution makes the total contribution up to 8%. If pensionable pay is the same as total pay then the total contribution need only be 7%.
If you don't already have a scheme or don't want to make changes to your existing one you can start a new scheme with a pension provider or use the Government backed NEST (National Employment Savings Trust) scheme.
Either way it is likely that the amount you spend on your employees will increase. Rather than thanking you for your generosity it's probably fair to say that not everyone will be happy to see a reduction in their net pay.
So now is an opportune moment to review the appreciation of your current scheme. Communication will be needed to remind employees what you currently offer and explain what will be changing. Employees who are not currently in your pension scheme may feel like they are getting a 5% pay cut, but at least this can be phased in over 3 years! It allows them to give some thought to whether they should remain in the scheme, rather than immediately opting out as a knee-jerk reaction. One day, perhaps many years from now, they might just thank you for it.
The RM2 Partnership is pleased to recommend Foster Denovo, specialists in Employee Benefits design and communication. They regularly run free seminars for Finance and HR Directors, focusing on pensions and flexible benefits. For more information please email RM2@fosterdenovo.com or telephone 01932 870769.