With the government’s plan to get 11m more people saving towards retirement now in full swing, what does this mean for the 1.2m smaller businesses across the UK?

The process, which started with employers of over 120,000 staff in October 2012, will affect all businesses which employ “jobholders”, no matter how few. As with most legislation, this isn’t as straightforward as it may look (note the lack of use of the word “employee”!). There are 2 categories of “jobholder”, for which the employer will have different obligations.

Eligible jobholders are those which satisfy the following criteria:

• Aged 22-State Pension Age (“SPA”)
• Work in UK
• Earnings above £8,105 pa.

These individuals must be automatically enrolled into an eligible pension scheme or the government’s National Employment Savings Trust (“NEST”), although the date at which this must happen, your “staging date”, will vary depending upon your number of staff and your location, with the latest being in 2018.

Non-eligible jobholders have the right to opt in, and must satisfy the following criteria:

• Aged 16-20 or SPA-74
• Work in UK
• Earnings above £8,105 pa.

OR

• Aged 16-74
• Work in UK
• Earnings above £5,564 but below £8,105

This may seem rather confusing for most small employers, but fear not (?). Following the publication of the 60 page NEST Insight report, the pensions minister, Steve Webb, has advised that the process is being looked into, in order to simplify this for smaller employers (watch this space!). This would seem like a sensible option, given that the largest employers have struggled to comply with the deadlines, even though they have whole departments of people working solely on this.

So what does this mean in practical terms for smaller employers?

In all likeliness, you will need to provide your staff with a pension scheme into which they are automatically enrolled, with employer contributions into the scheme at a minimum of 1% of their salary (between £5,564 and £42,475). Current projections show that this minimum employer contribution level will rise to 3% from October 2018.

For someone earning a salary of £20,000, this will mean an additional annual cost to a business of £144.36, rising to (at least) £433.08 in October 2018.

For more information on your business’ staging date, the Pensions Regulator has provided a handy tool on their website – CLICK HERE FOR LINK

So, what’s the next step?

We have heard that currently it can take up to six months to set up a suitable scheme for smaller schemes and up to 18 months for larger schemes, so we would recommend that you start your preparations early, as heavy penalties have been advised for non-compliance. You should speak to your IFA, or the Barnes Roffe team who can provide further information and recommend a suitable IFA if required.