Auto-enroling in a Pension Plan
As an employer, you have a great deal of responsibility for the well-being of your employees. No matter what size your business is, there are people that depend on you not only for their livelihood, but also for their continued security after retirement. For British employers, enrolling your staff in an appropriate pension scheme is of the utmost importance and should never be overlooked. Navigating this process, especially with recent changes in government policy, can require a little bit of help. Here are some general recommendations to set you straight.
First, understand the law and how it affects you as an employer. The British government recently introduced auto-enrolment, which means that as of October 2012 all eligible employees automatically become members of a qualifying pension scheme. Qualifying schemes are already used by the vast majority of employers, except in cases where they pay far more than the minimum expected of them. Some companies that already have schemes may need to change their existing policies, and those that don’t have something put together already will need to set one up.
Qualifying schemes are determined by the level of contribution payments, and there are two qualifying bases—banded earnings, and pensionable earnings. The minimum contribution, starting in 2018, is 8% of an employee’s band of earnings (earnings within the band, including overtime and bonuses). As the employer, you’re responsible for at least 3%, and each employee makes up the rest. If you instead opt for paying on a pensionable earnings basis, then contributions are based on an employee’s total earnings. The amount paid is the higher of the employer’s definition of pensionable earnings, or of basic pay (the element of pay that don’t vary). Qualifying schemes of this type are used almost exclusively, except in the case of employers that choose to pay over 8% of banded earnings themselves, or similarly contribute very large amounts.
Confused yet? This is around the time that most employers throw up their hands in despair. However, you’re in luck. There are a variety of services that can help with the enrolment process for employers looking to set their employees up with the right scheme. Pension providers themselves offer lots of information online, and can be of great benefit for navigating the auto-enrolment system. Consider taking advantage of interactive services and personalized assistance through their websites before tackling the process on your own. Your employees will thank you.