As a business owner, you are probably aware that you must automatically enrol any employees into a workplace pension scheme. Here we look at how the new pension rules work, and explain why many small companies are exempt.
Who needs to be enrolled on the scheme?
There are several criteria you should consider when determining with employees are eligible for workplace pension auto-enrolment.
Firstly, the most important and obvious criteria are that they are not already in a qualifying pensions scheme at work and that they work in the UK.
Secondly, they must be aged between 22 years of age and the state pension age, and earn at least £10,000 in a year.
Employees who are not eligible may also ask to be enrolled – including those aged between 16-74 who earn between £5,876 and £10,000 per year (2017/18 figures). Or, those aged between 16-22, or state pension age – 74, earning £10,000 or more per year.
What if you don’t have any staff?
The automatic enrolment obligations won’t apply to your company (or you, as an individual), if you are not considered to be ‘an employer’ for the purposes of this legislation.
If your company meets any one of the following criteria, then the new pension rules will not apply:
- You are the sole director of your limited company, with no other employees apart from yourself.
- Your limited company has 2 or more directors who do not have employment contracts, and the company has no other employees.
- Your limited company has 2 or more directors, one of whom has an employment contract, and the company has no other employees.
- Your company has been dissolved, ceased trader, or gone into liquidation.
When should small businesses have enrolled employees by?
Since 2012, staging dates have been rolled out to ensure businesses of all sizes allow their employees to benefit from the scheme.
The UK’s largest companies were the first to comply with the auto-enrolment regulations, followed by smaller employers.
The final staging date for new employers is 1st February 2018.
The best way to find out whether a business should have enrolled employees, or when their staging date falls, is via The Pension Regulator’s handy online form.
You will need your Employers’ PAYE Reference Number to hand, e.g. 120 / WP6151
In some cases, you may be able to apply for postponement, allowing you extra time to get your pension arrangements in place Find out more here.
How much will it cost my business?
There are minimum contributions you must make as an employer – for most small companies, this starts at 1% of an employee’s qualifying earnings, rising to 3% from April 2019 onwards.
The earnings change each tax year, but for 2017/18, the earnings you can use to work out your contibutions are between £5,876 and £45,000 of gross pay.
For the current tax year, the highest qualifying earnings figure is £39,124 (£45,000 – £5,876).
When you contribute to an employee’s pension, the employee also contributes.
Is it possible to opt out of the workplace pension?
As an employer, you can’t opt employees out of the workplace pension scheme – and it is illegal to encourage them to do so.
Generally speaking, it is not particularly common for workers to opt out of their pension scheme – only around 9% have done so to date, as it is a simple and effective way of saving for retirement.
However, employees may wish to opt out – they must do this within a short amount of time after their auto-enrolment has been validated.
Find out more about your pension options
If you are interested in finding out the most tax-efficient way to invest in a pension for you, or any employees, find out more here.