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What is auto-enrolment?

In a nutshell, auto-enrolment means that all employers will have to provide a pension shame for their employees and that they will have to make payments into that pension scheme on a minimum fixed scale.

Employers have to pay a minimum of 1% of the salary into the pension scheme rising to 3%, whilst the employee must contribute  1% rising to  5%  by October 2018.  This may affect plans for pay reviews and the structure of your business, about which you may need to start making plans now.

We can be your auto enrolment provider

As you may be aware, the government has introduced pensions legislation that means that all employers, regardless of size, have to automatically enrol all their qualifying employees into a suitable pension scheme and make contributions to it from a certain date.

Let us be your nominated advisor, and we will manage the entire process for you.

We have researched the market to check the options available to you to help our clients comply with the legislation as part of our service to you. Following this review, our recommendation to you is to use the auto enrolment services provided by our selected auto enrolment provider and unless you object we intend to add this service to your payroll, if we already deliver payroll services for you.

Our payroll software is all fully compliant and we are already running auto enrolment services for our clients.

Auto enrolment contribution rates

The employer and employee must normally make contributions, and there is a minimum employer contribution and a minimum total contribution as detailed below.  The employer could pay more and the employee less, as long as the overall minimum is achieved.

Please note how the employers contribution rate increases, and employers may wish to factor this into the way that overall pay for employees is structured.  Employees will be informed of their auto enrolment contribution rates automatically, but these will be potentially significant come October 2018.

[table]

Staging date, Employers minimum,Total minimum

Staging date until 30 September 2017,1%,2%

1 October 2017 to 30 September 2018,2%,5%

1 October 2018 onwards,3%,8%

[/table]

These are minimum figures, and single-director companies may want to consider making their own pension arrangements.  For instance, a director may wish to set up an auto enrolment scheme where by October 2018 the company pays 10% of the qualifying salary into a pension.  This may affect your personal pay strategy.

Who is eligible to join the pension scheme?

You must enrol every employee who earns enough to pay National Insurance and is over 21 into the scheme.  That is the essence of auto-enrolment.  These employees are then given the chance to opt-out should they wish.  You can extend the scheme to other employees if you wish, but this is at your option.

Small companies must be exempt

Absolutely not.  There are no exemptions for small companies.

What about single director companies?

There are no exemptions for single-director companies.  As the director, you are obligated to create a scheme, or face prosecution for not meeting a legal requirement to look after yourself.

Isn’t this another pension mis-selling scandal in the making?

Possibly; but the Government have a low-cost scheme called NEST which will provide a basic level of cover for small employers and which will allow full compliance with the requirements.

What can Nicolson Accountancy do for you?

Our conversation with pension providers indicates that smaller schemes are going to have difficulty in finding a provider, and that costs are going to be large – we’ve been quoted £3,000 minimum to set-up costs.

For smaller companies we can help by helping you through the process at a small, fixed, cost to sign your company up for NEST and to ensure that you comply with all the rules.

For single-director companies we can help you meet your requirements to opt-in and optionally opt-out of NEST, and there can be good reason for starting this now rather than at the last possible minute.

Tax savings

The pension contributions are deducted from the gross salary before tax and NI is calculated.

The following tax savings arise:

Benefits of the recommended auto enrolment service

We believe that our chosen auto enrolment solution is the simplest, most cost-effective way for you to comply with the auto enrolment legislation. Payroll clients will receive a brochure outlining the chosen auto enrolment solution and pension scheme details.

Unless you object, we propose to add this service to our existing payroll services to you and simply ask that you complete the authorisation process and the direct debit mandate to pay your pension contributions when requested to do so by our auto enrolment solution provider.  You will be contacted automatically so if you are happy to use their services you need do nothing further to comply – it will all be taken care of for you.

If you intend to use an alternative auto enrolment service or solution please contact me to discuss your preference and to let me know who your chosen provider will be.

If you are a sole trader with no employees or director of a business with no employees, you have no auto enrolment duties but must tell The Pensions Regulator. You can still use our chosen auto enrolment solution if you would like to set up a pension. If your business later takes on an employee you will also need to tell The Pensions Regulator as you will then have auto enrolment responsibilities. If you do not have auto enrolment responsibilities but would like to take this opportunity to set up a pension scheme, you can contact our chosen auto enrolment provider directly.

If you have any questions or comments, please do not hesitate to contact Sue.

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