If you run a small business, it is vital that you stay informed about all types of workplace legislation. As the laws change and evolve, you need to be fully aware of your obligations as an employer, both to fulfil your responsibilities to your employees and to protect yourself from litigation.
Pensions in the workplace have come under heavy scrutiny over recent years, with fears that not enough people would have enough set aside for retirement. Those employees who didn’t receive a work-based pension didn’t always realise they should be setting up a private pension. It became increasingly clear that there would be potentially be a whole generation with a massive income gap when they finished work. This would have a real negative impact on the economy, with much less disposable income being spent by the older generation and huge pressure on the welfare state to make up for the loss of income experienced by those who retire.
The government has therefore brought in new legislation to ensure that everyone in employment would have access to a pension as part of their workplace benefits. This puts the onus on you as an employer to make sure you are fully complying with all pension rules which began to be implemented in 2012.
Businesses are being ‘staged’ into the new system, so you need to check when you are eligible to sign up. From this date, you will need to have a workplace pension scheme in place if you didn’t already have one.
You need to enrol all employees who earn a minimum of £9,440 annually, are aged between 22 and the state pension age and work in the UK.
You don’t have to enrol employees who earn less than £473 per month, £436 every four weeks or E109 per week.
All of your employees who meet these criteria need to be entered into your pension scheme, under a system known as automatic enrolment. You will need to make a matching employer contribution to their automatic contributions, which will be taken at source from their salary.
Employees do have the option to opt out, so although it is mandatory for you to offer the scheme, it isn’t compulsory for them to stay in it. If an employee opts out, then you need to offer them the chance to rejoin every year, or re-enrol them every three years automatically. Some employees opt out at first, as they don’t want to lose the immediate income, but as their salary increases or they start to get older, many realise the importance of having a pension and decide to opt back in.
These types of plans are sometimes known as defined contribution schemes. Both employee and employer will know exactly how much they are contributing every month. This doesn’t guarantee the amount of pension income they receive, as this will depend on the type of investment the pension scheme is in. The contributions you both make will be a percentage of the employee’s earnings.
As with all pension solutions, there are various risks involved with each type. Aon Hewitt’s risk analyzer helps to decipher which pension plan is suitable for you.
For a small business, changes in legislation such as this can sometimes seem as if they just lead to extra work, extra expense and extra hassle. But the reality is that a job with a pension attached was always a more attractive proposition to the best talent, so forward-thinking businesses were already offering pensions as part of their employee benefits. This not only helped with recruiting the best talent, but was also a good way of retaining employees. By introducing mandatory pension schemes, the government is securing the financial future of the country and offering employees better terms at the same time.