Today we remember Guy Fawkes’ attempt to blow up the Palace of Westminster. Since then our legislators have been beavering away passing laws and regulations on all manner of subjects. Recently pension reform has been grabbing their attention, with the well publicised reforms to personal pensions and the ability for phased drawdown (Recently blogged by Richard Verge). Although of far wider significance is the introduction of auto-enrolment pensions, which employers will have to offer the majority of their employees. After all if individuals are to have flexible pension options; they need to have a pension pot in the first place.
Auto-enrolment has been phased in since 2012, starting with the largest employers, rolling out to all businesses. This is now becoming a hot topic for many small and medium enterprises, whose staging dates are coming up. To begin with employers will need to contribute a minimum of 1%, with the employee also providing a 1% contribution. The contribution from the employer is then set to rise to 3% from 2018 onwards. So it is going to significantly impact those businesses whose staff costs, make up a high proportion of their cost base. Therefore, it is essential these changes are factored into their business plans.
However, this cost can be turned into a positive. As I recently blogged, staff turnover is a major challenge at the moment. Auto-enrolment could be used as an opportunity to differentiate from the competition, with contributions in excess of the statutory minimum or incorporated into a flexible benefits package for employees. The other bit of good news is the employers’ contribution can be used as a deduction against corporation tax.
Not only are there financial implications, you also need to consider a range of other factors in implementing auto-enrolment: Is your payroll software up to the challenge of coping with auto-enrolment? Who do you want your pension scheme provider to be? What and when do I have to communicate auto-enrolment changes to my staff? All of this will take time to look into and according to the pension regulator; failure to comply can lead to fines of up to £10,000 a day. So to make sure your business is ready, remember remember auto-enrolment, find out your staging date and start planning now.