Many small business owners are now tackling Auto-Enrolment for the first time. The subject is throwing up lots of questions, and with deadlines looming, small businesses need to ensure they get their Auto-Enrolment Pension Scheme in place in time.
To help, we asked Paul Budgen of NEST, which has been set up by the government especially for auto enrolment, to answer 5 of the most common questions small businesses are asking about auto-enrolment pensions;
Have you seen the big blue monster running around a park on your TV screens? He’s called Workie and he’s trying to tell people about their workplace pension.
Everyone in the park Workie talks to completely ignores him and just doesn’t want to know. However, small and micro employers need to start listening to him. Did you know your deadline to set up your auto enrolment scheme is fast approaching?
Small businesses may find pensions unfamiliar territory. Many have never had to offer a pension scheme. Unsurprisingly, many have questions.
Despite the fact that auto enrolment is now four years old and has already affected many employers, there are still some misconceptions about what it means for a business owner. More importantly what does it mean for you reading this article right now?
Have you figured out who in your workforce is eligible for a pension? Or do you know how to set your scheme up and then communicate it to your workers? No? Then you read on for the answers to 5 of the common questions small businesses are asking about auto enrolment.
Q1. ‘Do I have to offer a pension to every member of staff?’
This is one of the questions I get asked most often. The simple answer is yes, the only exclusions from your workforce are the under 16s and over 75s. However the first step is to take a look at your workforce as a whole, then split them into the three different types of workers:
Eligible workers are:
- Those who aren’t already in a qualifying pension scheme at work
- Are aged at least 22 but under state pension age
- Work in the UK
- Earn more than £10,000 per year (this figure is reviewed by the government each tax year)
Non-eligible workers are:
- Aged at least 16 but under 75
- Work in the UK
- Earn more than £5,824 in a year
Entitled workers are:
- Aged at least 16 but under 75
- Work in the UK
- Earn less than £5,824 in a year
Now for the second step! Once you’ve assessed your workforce you need to understand your duties to each group.
Any eligible workers need to be enrolled automatically into a workplace pension scheme. You must then contribute to their pension pot. Currently minimum contributions stand at 2 per cent of a workers’ qualifying earnings, but over the next few years this percentage will increase. Workers are also entitled to increase their contributions.
Your non-eligible workers can ask to be enrolled into the scheme and, again, you must pay minimum contributions.
For your entitled workers, if they ask to join the scheme they can, but as an employer you don’t need to contribute to their pots.
Q2. ‘But, I only employ 2 people, this can’t apply to me?’
I also often get asked this. Actually it does. Whether you employ 1 worker or 50, you still need to offer each and every eligible worker a workplace pension and inform all the people you employ about the new workplace pension rules.
Q3. ‘How do you choose a good Auto Enrolment pension provider?’
Many employers are using master trust pension schemes to meet their duties and there are some really good quality schemes out there. One of the indicators of quality that employers can look for is whether the scheme has adopted the master trust assurance framework. If so, then the provider has been independently assessed to have robust governance in place.
You might also look for the Pensions Quality Mark or other independent assessments of quality, such as awards. NEST has all three, and importantly, as we were set up by government for auto enrolment we are open to any employer to use, at no charge. We will always say yes to any employer that wants to use us, so there’s no need to worry.
Q4. ‘How do I tell my workers that I’m putting them into a workplace pension?’
Once you’ve chosen a scheme, you must communicate the details to your employees.
Legislation requires you inform your workers in writing. The NEST website has communication templates available for you to use and, they’re free! The templates ensure you comply with auto enrolment legislation and they help ensure you’ve told your workers everything they need to know about the new workplace pension rules.
Communication is essential but it’s also an opportunity for you as an employer. Workers who receive clear and engaging information about their pension from their employer are more likely to value this as part of their works and reward package.
Q5. ‘Won’t most people just opt out of AE?’
Of course, I always get asked this. The answer is no, not if current trends continue. So far the evidence suggests people like auto enrolment and value the contribution from their employer, with opt out rates of under 10 per cent.
This rate is even lower for younger workers, showing that most workers really value workplace pensions and can see the benefits.
So with those questions answered, you should be well on your way to setting up your workplace auto enrolment pension!
About the author
These auto-enrolment answers have been provided by Paul Budgen, Director of Business Development of NEST. If you’re still unsure of the facts, the NEST website is packed with information you need to know about auto enrolment and the NEST scheme.
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