Auto-entrolment - what are the options?

Four years ago, this October, the starting gun was fired on a workplace pension revolution. Known as auto-enrolment, its aim is to ensure we all have enough income to live on when we get old and changes the pension landscape for employers. A new dawn Auto-enrolment provides a starting point for retirement preparation as employers enrol their eligible staff into a company pension and contribute to it. As Nathan Long, a senior pension analyst at Hargreaves Lansdown, notes, eligible staff are aged between 22 and State Pension Age earning the equivalent of £10,000 a year or more: “The contributions start low (just 2% in total with at least 1% from the employer) but reach a total of 8% by 2019 (of which at least 3% must come from the employer). Employees can opt out but not before they are enrolled.” Nathan makes the point that while auto-enrolment started with the largest employers, the continued roll out means small employers must also tackle workplace pensions – small salons are not exempted. “The first step,” says Nathan, “is for employers to find out when they must comply as failure to do so can lead to fines of £50 to £10,000 per day.” He adds that employers can find out their start date by visiting the Pension Regulator’s website (www.thepensionsregulator.gov.uk) armed with their payroll reference number. It’s important to remember that employer responsibilities don’t stop once an auto-enrolment scheme is up and running as there are several on-going requirements including enrolling staff as they become eligible; paying sufficient contributions; certifying at least every 18 months that the employer has met their auto-enrolment responsibilities; and re-enrolling all staff every three years (with an opt out for those that want it). But as well as this, employers must be aware of any legislative changes. Nathan says that recent tinkering so far has reduced the burden on employers, including pushing back the two increases in minimum contributions by six months. These will now occur in April 2018 (increasing to 5% with a minimum of 2% from the employer) and 2019 (increasing to 8%, with 3% required by the employer) – they could rise further. Options for employers The number of workplace pension providers is huge, but there are two main types; Group Personal Pensions (including Group SIPPs) and Master Trusts. As a result of auto-enrolment there has been an explosion in the number of small Master Trusts and question marks exist around the security of some of them. As such, Nathan says it is important for employers to be confident that their choice of pension will be around for the long haul. An alternative is NEST (National Employers Savings Trust), a pension scheme introduced by the government, with a duty to accept any employer. Whichever route is followed, employers should ensure they understand all the costs, as some providers will charge a scheme-set-up fee.