The short answer is quite a lot, actually! A workplace pension is a pension scheme which is set up by an employer for its members of staff to save into. The government is making it compulsory for every employer in the UK to set up a workplace pension scheme and automatically put members of staff into the scheme – even if they employ just one other person. The mechanism the government has decided to use to get people saving is called auto enrolment.
This means that employees who are between the ages of 22 and the state pension age and earn more than £10,000 per year must be put into a pension scheme by their employer. The government has staggered the deadlines for setting these pension schemes up, starting with the UK’s largest companies in October 2012, followed by the mid-sized, with the small ones this year and next.
Employers have to contribute 1% of an employee’s qualifying earnings to the pension scheme, which will increase to 3% over time. Employees will also contribute 1% of their qualifying earnings, rising to 5% over time.
Once they’ve been put into a pension scheme, employees have a 30 day window where they can choose to opt out. So far though, most people are deciding to keep saving. This backs up the government’s theory that most people want to put aside money for their retirement, but would rather that someone else looked after the details.
Advice for auto enrolment
For small business, tackling auto enrolment can feel daunting but a little planning can go a long way. Here are a few tips to start off with:
- Start planning early – six months ahead of your staging date at the very least. Your staging date is the date when your auto enrolment duties come into effect. Leaving auto enrolment to the last minute will inevitably result in more stress and potential errors, which can easily be avoided through a bit of planning.
- Make sure to tidy up your payroll data, as errors and inaccuracies can cause untold problems further down the line. You are responsible for providing the correct data in the right format to your workplace pension provider to make sure the right contributions are deducted.
- Also think about your payroll arrangements and what you might have to change to comply with auto enrolment. If you have an outsourced payroll provider, talk to them to find out how they can help you.
While it might seem a bit of a hassle, making auto enrolment work best for your business is valuable to your employees but can also be very valuable to your business.