compiled with the help of Will Palmer, Director & Financial Planner with ProAktive in Doncaster

Pension Reform is here. The opt-in stakeholder pension is being replaced by the opt-out automatic enrolment pension that employers will have to provide for all their employees and to which they will have to contribute.

If an employee does not want to be involved, they will have to say specifically that they want to opt-out of this new pension regime.

The pension is being introduced gradually, with the largest firms being required to introduce it first and the smallest last. Some larger firms introduced their schemes ahead of the deadline. But whether it is sooner or later, all companies will be required to have these pensions.

If you have more than 60 employees you should have implemented your pension scheme by 1 August. If you have 30 or more employees your deadline will be sometime before 1 October next year, depending on the precise number of people you employ. Fewer than 30 employees and you will have to have a scheme in place sometime between 1 June 2015 and 1 April 2017, depending on the final two characters in your PAYE reference number.

And if you do not comply, these are the sort of penalties you will face:

• A fixed penalty notice for non-compliance of up to £400
• An escalating penalty notice, again for non-compliance, of between £50 and £10,000 per day, depending on the number of employees you have
• A civil penalty notice, where contributions are not paid, of up to £5,000 for individuals and £50,000 for companies
• A bill for the missing contributions backdated to the Staging Date

A helpful form regarding pensions can be downloaded here.

 The key questions employers need to consider to fulfil their responsibilities are:

• When do I have to have my scheme in place?

• Who do I have to enrol into the scheme?

• How much is it going to cost?

• What are my options in terms of providing an eligible scheme?

• Is there anything I can do to reduce the costs?

I will address these questions in turn.

When do I have to have my scheme in place?

The Pensions Regulator has put a schedule of staging dates together (ie the date by which the employer must have a scheme set up and be contributing to it).

The staging dates started in October last year for employers with more than 120,000 full-time staff.

The implementation rolls out according to the number of employees, down to companies with 50 people. After that, the staging date is determined according to the firm’s PAYE scheme, with the last date for the smallest firms being the end of the financial year 2016.

There should be plenty of time for stone companies to prepare for the changes but don’t forget about them because there are fines and even the possibility of prison for companies that do not comply.

More information on staging dates is available on the Pension Regulator website: www.thepensionsregulator.gov.uk

Who do I have to enrol into the scheme?

There are various employee categories, but the employer has a duty to automatically enrol all employees between 22 and state pension age into the scheme where they earn above the Personal Allowance limit (£9,440 from April).

How much is it going to cost?

There are four different ways that an employer can satisfy the rules of automatic enrolment, from looking at a percentage of band earnings to looking at a percentage of basic earnings only.

As a general rule of thumb, the employer contribution will start at 1% and increase to 3% by 2018, with employees also obliged to contribute.

What are my options in terms of providing an eligible scheme?

Employers can opt to put in a National Employment Savings Trust (NEST) scheme, Private Provision scheme, or a combination of the two.

Generally, Private Provision is most likely to be available where there are at least five members and an average contribution per member of more than £100 a month.

Anything less than five members – and there are an estimated 800,000 employers with fewer than five employees – are likely to be best suited to NEST.

Is there anything I can do to reduce the costs?

Employers should look to salary exchange (sacrifice) as a way of meeting the contribution requirements – this will allow some National Insurance savings to form part of the overall contribution. The NI rises annouced last year have made salary exchange an even more cost effective way of contributing to pension schemes.

We are already seeing a huge uptake in Employer Pension Schemes, with many employers reviewing whether their existing provider is the right one to use as their automatic enrolment provider of choice.

Some providers are no longer in the market and every existing scheme should have an audit to determine the suitability of the provider of choice for the automatic enrolment scheme.

A final question you might also ask yourself is: Should I really take this seriously?

The previous government’s ‘Stakeholder’ initiative had little take up, which is one reason it is being replaced.

But auto-enrolment is the Stakeholder Pension with teeth. The Pensions Regulator has laid out a schedule of fines for those who flout the rules.

For employers with more than 500 employees the fines can be as much as £10,000 a day and wilful failure could result in two years in prison for directors.

At ProAktive we believe being on the front foot is important regarding this new legislation, whether you agree with it or not.

Reviewing your existing arrangements is essential, as is drawing up a plan that best suits your business and delivers the most tax efficient valued benefit to your staff.

There is a lot of information on the Pensions Regulator website (www.thepensionsregulator.gov.uk). It takes a bit of unravelling, so it is worth starting to prepare your scheme sooner rather than later if you intend to do it yourself.

Employers are required to maintain accurate records and systems will need to be put in place to satisfy those requirements.

It is worth starting to prepare for the implementation of a scheme well ahead of the implementation deadline to avoid a last-minute rush that could lead to mistakes, which, in turn, could lead to penalties.

If you need help, it is how we at Proaktive make our living, so we would be happy to hear from you. Call 01302 341344 or use the email and website addresses below.