‘Auto-enrolment’ has been a buzzword in recent years for small businesses. Why? Because it means that all workers must be automatically entered into workplace pension schemes by law. All employees over the age of 22 and under the state pension age, and those that earn more than £9,440 a year are eligible. It’s a massive change, which has been on the cards for years – since the Pensions Act 2008 – and will be eased in gradually until April 2017. But for many small employers not used to dealing with these employee benefits, it can seem daunting to sort out. Here’s how they will work and benefit SMEs.
Getting all UK companies on board is a huge task, so the first step is to find out when your company is due to make this change. It’s dependent on the size of your payroll, so you can work it out using this guide from the Pensions Regulator.
There are numerous pension funds out there that you can choose from – the obvious one is the NEST scheme, which has been automatically set up by the government specifically for auto-enrolment. It’s simple and easy to use, but you may prefer to explore other options, such as those offered by Standard Life or Legal and General, for instance. If the dizzying array of options are too overwhelming, seek the advice of an independent financial advisor, who’ll be able to guide you in the right direction for your business. The Pensions Regulator has more clear advice on this here.
If you’re an SME, contributing to a pension is likely to be a new thing for your company, so make sure you factor it into your account forecasts. In the initial phase, your contribution will only be an added 1% on top of employee salary, but by 2018 this will rise to be 3%. Again, you may find that a financial advisor can show you how to make savings and factor in this cost to your business accounts. Another great place to find experts in this field is through Unbiased. You’ll want to ensure you don’t end up with any nasty financial surprises.
Don’t forget that there are upsides to workplace pension schemes for you as a business owner. Contributing to pensions means your National Insurance bill will lower, as your employees’ contributions come out of their gross earnings, not net – so you pay NI on less earnings. It also means that just like much larger organisations, you can now offer them this great benefit. Many workers have left small businesses to take advantage of the perks offered by bigger companies, like pensions, but now you needn’t lose treasured staff.
There are loads of resources out there on the web ready with clear and simple help for SMEs to get them ready for auto-enrolment in time – so don’t miss out. Start preparing today.