All business owners that have employees are facing the reality of having to introduce a workplace pension for their employees at a specified date called their ‘Staging Date’. You will be excused for having the feeling that you have heard this all before. The ill-fated Stakeholder Pensions came and went with hardly a ripple as they were largely ignored by many employees in the UK. However, believing that workplace pensions are just more of the same is a much misguided perception.
Under the Stakeholder regime employers with over five employees had to provide access to a pension scheme in case employees wanted to participate by opting in. Under Auto Enrolment it works the other way round. Everyone is in, unless they opt out. Even if employees do opt out they are automatically enrolled back into the scheme after three years. Employers have to provide a workplace pension scheme for their employees, and deal with all the admin of running it. Failure to do so will leave them liable to a battery of penalties.
Again, unlike with Stakeholder pensions, employers will have to contribute to the scheme: one percent to start with, rising to three percent after three years. The employee will contribute one percent in year one, three percent in year two, and five percent in year three. The loss of the employer’s contribution will be make employees think twice about opting out. Take note employers, workplace pensions are here to stay.
Whilst the implications of the first few years are known, the real question is where such arrangements are going in the future. You cannot help but feel that the current maximum of eight percent funding will only be a starting point, and, over time, the levels of contributions for both employers and employees will increase. Faced with the reality of an ageing population, the cost of the State Pension has become an ever-increasing strain on Government finances. Will there come a day when an announcement is made that workplace pensions, paid for by both the employer and their employees will replace state funded pensions entirely? No doubt this will take time. No Government would dare risk removing State Pensions for those who have worked all their lives in the anticipation of getting a state pension at some ever-increasing age. However, as workplace pension percentages increase it may be the writing on the wall. Perhaps State Pensions will become means-tested initially. The prospect of no Government funded pension however, may arise for future generations as they start their working lives.
At this time, this is nothing more than mere speculation. However, there will be many of you reading this who are old enough to remember Statutory Sick Pay being once paid by the Post Office. Over time, the cost of the admin was passed on to employers, with the amounts paid out being recoverable through the PAYE system. The burden of the cost was initially passed on to large employers, and eventually on to all employers. A step-by-step process has slowly but surely resulted in the Government effectively divesting the cost of, initially the administrative burden, and, ultimately, the cost of funding sick pay.
Whether or not this speculation proves to be accurate, only time will tell. For now though, employers will have to cope with the new demands that are being placed on them. We have been warning our clients about this oncoming issue for some time now.
The starting point for employers is to establish their Staging Date. Watch the video below to learn how to do this:
Our second video on Auto Enrolment provides details of what needs to be done by employers prior to their Staging Date.
As the fear factor increases there are a variety of responses being put forward by the assortment of professionals that business owners commonly rely upon. Some accountants and payroll providers are having nothing to do with workplace pensions, leaving their clients to deal with it themselves or look elsewhere. Independent Financial Advisors are very much stepping into this void, and are value-pricing the provision of both the set up and the administration of their services. Software providers have also been quick to jump on the bandwagon. They talk up the administrative burden of Auto Enrolment and workplace pensions, and charge accordingly.
Faced with the prospect of additional and unwelcome costs where can business owners turn to? At DEB we have sourced a low-cost solution that we can offer. Rather than taking advantage of the situation and charging premium prices for helping businesses, we hope it will provide an opportunity for us to meet with new clients and enable us to demonstrate the many ways in which DEB Chartered Accounts can provide valuable assistance. Please watch our latest video on Auto Enrolment.
All business owners will need help from somewhere. If you are not getting the help that you need, we would be delighted to hear from you. Give us a call on 01226 245824 for a free introductory meeting to discuss your needs for Auto-Enrolment and workplace pensions, or indeed, any other matters.