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Preparing your SME for auto-enrolment

Most of us have seen the ‘I’m in’ prime-time television ads.

They publicise the new revolution in workplace pensions with the auto-enrolment scheme.

But getting your small business ready for the Government’s new pension reforms may be more challenging than the majority of employers believe.

Because it is a legal requirement, SMEs face penalties if they do not comply within the allotted timescale.

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What is auto-enrolment?

The new pension scheme sees workers automatically enrolled into a company’s workplace pension as a legal requirement. It aims to enrol 11 million staff into their company pension scheme who have never done so before.

Which staff qualify?

Employees have to be working in this country, aged at least 22 and receiving an annual salary of at least £10,000. Workers have the right to opt out of the scheme if they feel it is not for them. The smallest firms begin auto-enrolment for their staff next January.

When does my business have to sign up?

Bigger companies have already started. Firms with at least 120,000 workers were obliged to launch their auto-enrolment programmes in autumn 2012. There has been a rolling programme ever since, working its way down from the largest companies downwards. Firms with between 50 and 89 staff will be expected to sign up this summer. Small businesses with fewer than 50 workers will begin auto-enrolment from next year over three years. You can check your company’s starting (or staging) date by visiting this Government website.

What does this mean for SMEs?

Extra admin: Such logistics may appear a tad daunting for thousands of small businesses, especially those whose HR and accounts departments are unused to dealing with retirement saving. Preparation is highly recommended. Small firms need to know when they are expected to offer auto-enrolment and how much their staff and their own minimum contributions will be.

Costs: Businesses will be expected to spend an additional 1% on their staff in the form of pensions contributions as well as their regular salary for the opening years in the new auto-enrolment era. This will increase to 3% by 2018.

Penalties: The Pensions Regulator (TPR) has powers to punish small businesses for non-compliance. It can issue £400 flat-rate penalty notices for breaches of employer responsibilities. The fine is aimed at winning businesses’ attention when they fail to implement pension reform, despite data and support available. The cost of these penalties notices will rise if employers still fail to comply to deter the most regular and serious offenders, dependent upon a company’s size. This will range from £50 a day for companies with up to four staff. This will rise to £10,000 a day for businesses with over 500 employees. These so-called escalating penalty notices will only begin after sufficient warnings from TPR.

What have the take-up rates been like so far?

As many as three million workers have already chosen auto-enrolment who had not had one previously in the first 18 months of the scheme alone.