Over the next two years, the majority of jewellery businesses in the UK will have to comply with the Workplace Pension Act, a new piece of legislation that requires all business owners to automatically enrol staff in a pension scheme that both employee and employer must contribute to.
For those yet to tackle the red tape, here are 10 things you need to know…
- The Workplace Pension Act is mandatory
In October 2012, the government introduced the requirement for employers to enrol their staff into a workplace pension, without employees having to take any action. This system is known as automatic enrolment and has been designed to encourage a retirement savings culture in the UK. This new legislation requires all employers with one member of staff or more to automatically enrol all eligible members of their workforce into a pension scheme that meets certain minimum standards.
- Not all employees are effected
All employees aged between 22 and state pension age (currently 65) earning more than £10,000 per year are eligible for auto enrolment and must be auto enrolled. Employees aged between 16 and 74, earning more than £5,824 but less than £10,000, are not eligible and won’t be auto enrolled however they can opt in and employers will then be required to contribute. Employees who earn more than £10,000 but are under 21 or over the state pension age are not eligible and won’t be auto enrolled, but they can also opt in and employers will be required to contribute. Those aged between 16 and 74 who earn less than £5,824 will not be auto enrolled either but they too can opt in, however in this scenario employers may not need to contribute.
- Your staging date is unique
The process began for large employers with more than 120,000 members of staff in October 2012. By 2018, it will apply to all employers – even those that only employ one person. All employers have a staging date based on how many employees were on their largest payroll – also known as PAYE – on April 1, 2012. A staging date is the deadline by which companies will need to have a scheme in place and be ready to enrol employees. It is assigned to the organisation’s PAYE number and, in general, employers with more employees will have the earliest staging dates and the smallest organisations will have the latest staging dates. The Pensions Regulator will write to employers at least 18 months before a business’s staging date, but staging dates can also be found on The Pension Regulator’s website for companies that want to prepare sooner.
- You can move your staging date forward to avoid capacity crunch
In July 2015, The Pensions Regulator updated its estimate of the number of small and micro employers yet to go through auto-enrolment in the next two years to 1.8 million, which was an increase of 500,000. It also estimated a peak of 350,000 small and micro employers will reach staging dates in the summer of 2017. Because of this, some are concerned that the system may not be able to cope and there won’t be enough intermediaries to advise the employers on what to do. If this may affect your company, you can consider bringing the staging date forward to avoid the potential capacity crunch. This will allow employers to consider all the pension providers in the market before some inevitably start withdrawing offers. However, moving your staging date forward does mean complying with the legislation at an earlier date, including the cost of contributions and any other services you are paying for.
- There are hidden costs
The cost of implementation, planning, payroll modifications, assessment, communications and record keeping will depend on the decisions an employer makes regarding suppliers and providers and current internal structures. There will, of course, be the ongoing costs in respect of pension contributions, but again these will depend on the average salary of members of the scheme and the contribution structure chosen. However, employers must be aware that the minimum employer contribution will go up in April 2018 and again from April 2019 onwards. Main costs to bear in mind are: the set-up cost, pension provider costs, bottom-line costs, increased payroll costs and increased administration costs.
- There are rules concerning communication with staff
It is an employer’s duty to inform employees about auto enrolment and the correct communications are a pivotal part of the process. Communications should be issued well in advance of the staging date and must include how individuals will be effected by the new legislation. Advisor NOW: Pensions says without a considered communication plan, eligible employees risk not being made aware of their contribution obligations, whereas non-eligible and entitled employees will not know that they can join, irrespective of the fact that it won’t happen automatically. It is worth noting that some pension providers handle all statutory communications to all categories of workers while others just provide templates for employers to issue.
- Employees can opt out
Employees can opt out, but those who do will be automatically enrolled every three years. This is called re-enrolment. This process is exactly the same as the initial enrolment process and employers must keep records of any employees who chose to opt out initially as this group will be affected by most by the re-enrolment.
- It takes a long time to get staging-date ready
Advisor NOW: Pensions recently conducted research with small and micro firms that revealed 20% of small firms and 75% of micro firms haven’t given any thought to auto enrolment. While companies may welcome late stagers, enrolling late puts increased pressure on both the employer and the provider. It is recommended that firms begin planning at least six months in advance of their staging date, although 12 months would make for a more comfortable experience. Now: Pensions says: “It’s certainly true that auto enrolment isn’t without complexity and the sooner an employer starts planning, the easier the transition will be.”
- Existing pension schemes might not comply
If employers have an existing pension scheme they need to establish if it is suitable for auto enrolment. There have already been cases of jewellery companies with existing, long-standing pension schemes in place that have had to move to a new scheme as the current one does not comply. Check in with a pensions advisor with experience in the jewellery sector about this, such as TH March or Workplace Pensions Bureau.
- You can go to jail for not complying
If you fail to comply with the auto enrolment scheme then The Pensions Regulator will take action. Enforcement action starts with statutory notices, followed by penalty notices. Further non compliance might result in court action. A fixed penalty notice will be issued if you don’t comply with statutory notices, or if there’s sufficient evidence of a breach of the law. This is fixed at £400 and payable within a specific period. If employers are late in hitting their staging date, they should take action as soon as possible to limit fines. All employers within five months of their staging date need to complete a declaration of compliance to send to The Pensions Regulator. Employers that do not complete this declaration may be fined, or in some cases imprisoned.