We have compiled a list of frequently asked questions that employers ask us about pensions and auto enrolment.
1. What is auto enrolment?
As part of The Pensions Act 2008, auto enrolment was introduced with the aim to address the issue of a high number of workers not saving enough for their retirement. Under this initiative, all employers must offer a workplace pension and all eligible job holders must be automatically enrolled into the scheme.
2. Do I have to set up a pension scheme?
If you have or are planning to have employees, then you will need to set up a pension scheme even if your employees intend to opt out of the scheme. This is a straight forward process which does not involve any set up costs.
3. Could I be exempt from auto enrolment?
If your company is only paying directors (i.e. you have no employees) and none of the directors have an employment contract, you are exempt from auto-enrolment.
However, there is still a requirement to inform the pensions regulator that you are exempt.
4. What types of pension schemes are there?
There are two main types of pension scheme:
A salary sacrifice pension scheme is when pension contributions are taken from the employee’s gross pay, before they have been taxed.
A relief at source scheme is when contributions are taken from net pay, after tax. The pension provider will then top this up by basic rate tax.
5. Can you advise which pension scheme I can set up?
As accountants, we are not authorised by the Financial Conduct Authority to offer advice on pension schemes. However, IFAs are and so we would recommend speaking with Jim Monger: www.millwardmay.co.uk/independent-financial-advisor
6. Do MY EMPLOYEES have to join a pension scheme?
If they are an eligible job holder and have been automatically enrolled in a pension scheme, they are given a 30 day period from your enrolment date in which they can opt out of the scheme. This must be done by the employee themselves, and instructions on how to do this will be sent out to each employee when they are enrolled. If they wish to come out of a pension scheme after this 30 day period, then you will have to cease contributions and leave the scheme.
7. Can my employees join a pension scheme later down the line?
Yes, they can request to join the pension scheme at anytime and you as the employer must have one in place for them to join. Depending on their eligibility, you as the employer may or may not have to make contributions to their pension fund.
8. How much Must we contribute?
Typically, the employee contributes a minimum of 5% and the employer contributes a minimum of 3% up to a maximum threshold, but this can vary depending on circumstances.
9. Who should be enroled in a workplace pension
This is quite a complicated question as people of different ages and monthly gross earnings are treated differently. More information can be found on the Pensions Regulator website: www.thepensionsregulator.gov.uk/en/business-advisers/automatic-enrolment-guide-for-business-advisers/check-who-to-enrol-in-a-workplace-pension
10. Do I have to set up a pension scheme with a particular pension provider?
No, it is your choice which pension provider you use and we would recommend speaking with Jim Monger: www.millwardmay.co.uk/independent-financial-advisor
Many of our clients use NEST: www.nestpensions.org.uk/schemeweb/nest/employers.html
11. Should I enrol employees when I set up the pension scheme?
Please do not enrol any employees. We will enrol employees for you when we link your pension scheme to our payroll system.
12. Is there anything else I need to do after setting up the pension scheme?
We must submit a declaration of compliance to the pensions regulator within 5 months of setting up the pension scheme. This is a legal duty of the employer. We will complete this and send it to you for approval. Once approval has been received, the declaration will be submitted.
Every 3 years the eligibility of all employees must be reassessed. Those that are eligible for re-enrolment but are not in a scheme at the time must be re-enrolled. They will then need to opt out again if they want to. We will administer this for you, as well as the redeclaration that must be completed 5 months after the re-enrolment date.