Thousands of small shops will soon be required to set up auto enrolment pensions for their workers. There are many pension providers – including one corporation set up by the government specially to provide pension products for auto enrolment.
THE final sweep in the launch of the new system of auto enrolment pensions is now under way and thousands of shops and other businesses with fewer than 30 employees are going to find themselves with new responsibilities to contribute to, and make arrangements for, pensions for their staff.
When you have to carry out the tasks depends on your staging date and that reflects your PAYE number. But if you are an employer in the UK of persons who are 22 years old or more and under the state pension age, earn £10,000 or more (that figure refers to the 2015-16 tax year and it is reviewed each year by the government), and aren’t already members of a qualifying pension scheme, you will have to enrol those staff members in a suitable scheme.
Workers who fall outside those parameters can also ask to be enrolled, in which case you will have to enrol them also.
Employers have a legal responsibility to let workers know: how they are affected by the new pension system; whether they are being auto-enrolled or have the right to opt in; whether they have the right to contributions from you and how much they will need to contribute; the pension scheme you have chosen; and when they will be affected.
Workers can opt out within one month of their enrolment, in which case the employer will have to refund any contributions. Workers can also choose to stop payments after the opt-out period.
The minimum level of contributions for all jobholders is 2% of qualifying earnings, which were between £5,824 and £42,385 for tax year 2014-15. The employer must contribute at least 1% and can choose to contribute more. The minimum contribution will increase over the next few years until it reaches 8% onwards from October 2018 of which a minimum of 3% will be payable by employers.
As well as the contributions that employers have to make the new system brings with it a number of administrative tasks. Larger companies with established payroll functions are likely to handle the systems in house. But that’s not so easy for small companies.
Many auto enrolment pensions schemes or solutions are available, with schemes and services provided by insurance companies and financial services firms. If you carry out a web search for ‘auto enrolment services’ you’ll find many to consider.
But the government has also set up an arms-length statutory body the National Employment Savings Trust or NEST, which provides pension schemes. The schemes are said to have been made with auto enrolment in mind and are designed to be administered online.
Even if an employer affected by the new system eventually decides to go with another provider it can be very useful to check out the NEST website for explanations of responsibilities, contributions and more.
It is possible for employers to run a NEST pensions account themselves or give someone else access to the account to run it for them.
Employees become members of the NEST pension scheme. Their pension pots should increase as contributions are made and if they realise positive investment returns.
NEST is non-profit making and argues that it provides a good value scheme where there are no charges for employers and members charges are 1.8% of new contributions plus a 0.3% annual management charge.
The trust organises a series of funds. Unless a member says differently his or her contributions will go into one of NEST’s retirement date funds. Such funds are intended to reflect how far a member is from retirement. So a member with many years to go would be invested in assets that hopefully will grow but might present some risk while those with only a short time to retirement will see their money invested in assets that are considered safer.
But for members who want to be more specific there are also other NEST funds such as its Higher Risk Fund, its Lower Growth Fund and its Pre-retirement Fund.
The trust also provides its Ethical Fund and its Sharia Fund.
The trust has an Employers’ Panel and a Members’ Panel with representatives of individual employers and members of trade bodies and interest groups.
For more information on auto enrolment check out