Time is running out for small organisations yet to set up a pension scheme – they’ll soon face hefty fines for non-compliance. Alistair Bambridge offers some advice for those that still need to take the plunge.
Visual hunt (CC0 1.0)
Pension auto enrolment has been rolled out since 2013 to different sized businesses and has now reached those with just one employee. So, even if there’s just you and one part-time administrator, or you’re a very small charity with a handful of staff, you are technically a small business and must comply with the new duties.
Even if you think none of your staff will want to pay into a pension, you still have to get a pension scheme up and running, and register it with the Pensions Regulator, by your ‘staging date’.
An employee can opt out of a pensions scheme, but only after they have become a member of the scheme
A staging date is the date by which an organisation is compelled to establish a qualifying pension scheme. It will vary according to the company’s PAYE reference number, but the very latest date is looming – that being 1 April 2017. You should receive notification of your staging date from the Pensions Regulator, but if you don’t recall this, then you can check on its website.
While the prospect of understanding pensions is daunting, auto enrolment has to become part of the payroll process in the same way as calculating PAYE and NI contributions. The person or company processing your payroll needs to fully understand how your contributions will be calculated.
One of an employer’s duties is to give certain information to employees within prescribed time limits. There are template letters on the Pensions Regulator website to ensure that you are compliant in relation to telling workers if they are being automatically enrolled, have a right to opt in, the process for opting out, information about the pension scheme and postponement. Some payroll service providers or accountants will manage this correspondence, as well as calculate the contributions and submit the schedule to your pension provider on your behalf.
Different types of workers
Workers fall into one of three groups:
- Eligible: This group must be enrolled in the pension scheme. It comprises those aged between 22 and the state pension age, earning more than £833 per month (£192 per week or £10,000 per annum), working in the UK and not already part of a qualifying pension scheme at work.
- Non-eligible: Unlike the group above, this group does not have the right to be automatically enrolled, but they can opt in if they wish and employer contributions must be paid for them. These are employees who are either young (between 16 and 22) or old (between state pension age and 74) and earning more than £833 per month, or are those aged between 16 and 74 who earn between the lower earnings limit (£485.33 per month) and £833 per month.
- Entitled: This group is aged between 16 and 74 and earning less than £485.33 per month (£112 per week). They have the right to join a work based pension scheme (and you must invite them to) but you don’t have to pay any pension contributions for them.
Certain people are exempt from auto enrolment, including:
- Sole directors who have no employees at all
- ‘Office-holders’ who are not considered workers (such as non-executive directors, trustees and elected members), but they are only excluded for the activities they carry out as an office-holder
- Self-employed workers
- Workers based outside the UK
Postponement is possible, but it does not mean you can postpone setting up your pension scheme. Rather it can be used for a maximum of three months; for example, in the case of a spike in earnings (such as seasonal overtime) where a worker’s salary would normally be below the threshold and not trigger auto enrolment. Or it can be used if someone is leaving your employment shortly, or for new starters that have not yet worked a full pay period.
There are specific rules for calculating minimum employer and employee pension contributions, and by April 2019 the minimum employer contribution will be 3%. Standard percentages apply to an employee’s ‘qualifying earnings’ (between the lower and upper earnings thresholds of £5,824 and £43,000 for 2016/17). Alternatively you can calculate contributions based on a percentage of total gross earnings. The options can be found on the Pensions Regulator website.
|A summary of what to do
Employer pension contributions that are higher than the bare minimum are a benefit of being employed and an investment in your staff’s wellbeing. While it is understandable to focus on keeping staff costs as low as possible, you would not want to be part of an ageing company where no one can afford to retire. Although you are not obliged to pay employer contributions for ‘entitled’ workers who ask to opt in to your scheme, you may choose to do so to treat all employees fairly.
Employees opting out
An employee can opt out of a pensions scheme, but only after they have become a member of the scheme, at which point they can request a refund of any contributions they’ve already made. The refund rules vary depending on the type of pension scheme you sign up for as an employer.
Be careful not to coerce any workers to opt out of your scheme. Some businesses have been guilty of this as a way of reducing costs, or as a condition of employment, promotion or salary increase, but these are considered as ‘inducements’ and businesses have incurred penalty fines from the Pensions Regulator for doing just that.
Choosing a pension scheme
Where and how you invest your pension contributions is a crucial decision and ideally you should seek independent financial advice. The Pensions Regulator recommends schemes on its website, but if you are a very small company you will find that there is a limited choice as few financial service companies are interested in smaller employers.
You could start by looking up pensions providers known for supporting smaller employers, such as NOW: Pensions, The People’s Pension, The Pensions Trust and National Employment Savings Trust (NEST), a pension scheme set up by the Government. You could also check before making a decision that the pensions scheme has the Pension Quality Mark.
Hefty fines for non-compliance
Be very clear that non-compliance is not going to be tolerated. If you miss or are late paying contributions you will first receive a statutory notice to direct you to comply. Penalty notices are then issued for persistent and deliberate non-compliance. The fixed penalty notice is £400 and must be paid within a specific period. The Pensions Regulator can also issue an escalating penalty at a daily rate of between £50 to £10,000 depending on the number of staff.
So now is the time to turn your attention to this matter. You don’t have the option of doing nothing…
Alistair Bambridge is a partner at Bambridge Accountants, a specialist in accounting for creative industry professionals.
T: 020 3829 3492
This article, sponsored and contributed by Bambridge Accountants, is in a series helping arts organisations and arts professionals to make the most of their finances.