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How you can prepare your business for auto-enrolment?

POSTED: 3rd September 2014
IN: Guides
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To help more people start saving for retirement, the government has imposed major changes into how workplace pensions operate.

undefined It’s not uncommon for businesses to give their employees a boost when it comes to saving for the future, but the new plans will see pension schemes becoming compulsory for all businesses.

As it stands, approximately 11 million workers are not enrolled in a pension scheme whatsoever, setting them up for a less than satisfactory retirement when the time comes for them to stop working. A pleasant retirement is estimated to cost around £10,820 a year, which over a period of 17 years, the average length of a retirement, equates to £225,756.

In order for workers to achieve their expectations of a happy retirement without financial strains, they need to start saving soon, as the current state pension consists of just £110.15 per week, or £5,7272.80 a year.

As a result of the lack of people enrolled in pension schemes, the government has introduced a new scheme whereby employers must support their staff and encourage them to start saving for retirement.

By 2018 all businesses in the United Kingdom must automatically enrol their employees into a company pension scheme. While employees are allowed the right to opt out of the scheme if they wish, the changes are predicted to have a huge impact on small companies.

While on the face of it this new auto-enrolment programme seems like the best thing to give workers the extra boost they need to start saving, the changes aren’t welcomed so favourably by employers. For many, the thought of having extra monthly outgoings can be quite daunting. Some business owners are already putting plans into place to ease any financial strain.

In some cases these preparations involve plans to freeze salary increases and make cuts to bonuses and overtime. So while the future is looking brighter for employees, they may have to reassess the amount that they spend now.

Who will be affected by auto-enrolment?

All workers over the age of 22, and under the state pension age will need to be enrolled, providing they earn more than £9,440 a year. Although it’s worth noting that this figure may rise by the time businesses are required to start their auto-enrolment process.

When will I need to enrol my staff on the scheme?

The dates in which businesses must start the programme are scattered and split into stages. It’s important to know your staging date so that you aren’t taken by surprise when it draws closer.

  • 50 – 249 employees 1st April 2014 – 1st April 2015
  • 30 – 49 employees 1st Aug 2015 – 1st Oct 2015
  • <30 employees 1st Jan 2016 – 1st April 2017
  • New employer 1st April 2017

All businesses should have their staff fully enrolled by February 2018.

How much will I have to pay?

The new scheme is going to be an expensive challenge for many businesses, and as a whole UK companies will face £15.4bn in set-up costs if they’re to abide by the new regulations. Small businesses are set to face a set-up fee of £8,900 in preparation for the new legislation, while small-medium businesses will face a figure of approximately £12,600. Larger companies, employing 250 people or more will be looking at a fee of around £15,600.

In the first few years of auto-enrolment, when contribution levels are at two per cent, firms will pay one per cent on top of their employee’s salary. By 2015 this will rise to three per cent. Thankfully, the rise won’t cause any extra tax liabilities, as your contributions can be offset against corporation tax and won’t be subject to employer National Insurance contributions.

What should businesses do to get their company ready?

While workers are encouraged to start saving early in preparation for retirement, the same can be said to employers who are anticipating the new auto-enrolment project.

Being forced to contribute to their employees’ pension pots obviously causes a huge burden for employers, many of whom may be struggling with cash flow problems already. However, the administration involved may also shake up the running of many businesses, particularly those who aren’t prepared for the change.

  • Budgeting


Small businesses will suffer the mostas proportionally, the cost for companies with fewer staff members to enrol on the scheme is higher. For businesses with just one to four employees the cost is predicted to be approximately £8,900. While for those with up to 500 employees, the increase in cost is not as drastic as you might expect at just £22,300.

As an employer, you need to assess how much your costs will rise with the introduction of auto-enrolment. In a perfect world, you may be able to accommodate these costs into your existing budget, but in most cases, SMEs may have to make savings elsewhere to meet the enrolment deadline.

  • Admin

If you have little to no experience of running workplace pension schemes, you may find that you need an extra helping hand to make it through with minimum stress. Not only is the cost of the new process set to cause some worry, an increase in administrative tasks may also deal a blow to some. In order to comply, businesses will be faced with completing a total of 33 different tasks ahead of their staging date.  Furthermore, it’s predicted that each business might have to set aside up to 103  days to get everything in order.

If this makes you feel a little out of your depth, don’t hesitate to seek expert advice in order to prepare for auto-enrolment. The financial and administrative strain on your business can be eased greatly with plenty of preparation in advance.

There are a number of things that need factoring into your new auto-enrolment scheme, and without a strong working knowledge of finances and accounts, some business owners may struggle. Here are just a few things for you to think about:

  • Infrastructure of payroll and HR departments: Make sure that your payroll team and HR staff are ready to handle the burden that employee pensions will entail. If you have any doubts, you may benefit from speaking to a financial advisor.
  • Opt out rates: If the number of employees opting out of the scheme is high, then you may feel like a weight has been lifted from your shoulders, but with every person to opt out, you will need to set time aside for appropriate administration to return payments back to normal.
  • Lower salaries: With many businesses planning to put a freeze on salary increases, employers can lower the amount that they pay in National Insurance contributions.

Finding the right pension

In order to keep your employees happy, it’s vital that you choose a pension scheme that will work well for your team. This is  articularly important if you’ve had to make a few changes to salary.

The good news is that with the introduction of the auto-enrolment scheme, a number of pension providers are offering more simplified pensions, to make the process much easier for business owners.

There are a few legal requirements which the pension you select must meet. For example the pension must not require the consent of the worker in order to sign up. It must be tax registered and allow for the minimal legal contributions from employees.

Keep employees informed

You may find that your employees have little interest or knowledge of pension savings schemes, but it is crucial that you provide them with the details of auto-enrolment in writing so that they know how the changes will affect them.

A lack of interest from some employees may seem challenging, and for this reason it’s important to ensure that the scheme you select is simple and easy to understand.

Employee benefits

The introduction of the new regulations provides companies with an ideal opportunity to review the benefits they offer to employees.

With the minimal contribution levels imposed by the Government, clued up employers will be battling it out to get one step ahead of their competitors when it comes to attracting high quality candidates to the recruitment process. By offering excellent employee benefits packages, you might find a higher number of prospective candidates battling it out to become part of your team.

Strong finances

The safest and most secure way for you to prove that it is business as usual for your company is by making sure that your finances are in order.

Set some time aside to assess your current finances and check that you have a steady cash flow so that you can make the extra payments each month. It’s not unusual for businesses to struggle with cash flow, and these new changes may set off a chain of late payments between organisations. If just one company isn’t prepared for the burden of pensions, then other businesses may be affected if they’re unable to make an expected payment.

Building business savings in a dedicated account could be an ideal way to support your finances and provide a safety net for your company. To make sure you don’t miss out on the perfect bank account for you, research the various options available as terms and interest rates can vary.

By following the above advice and planning accordingly, you can ensure that business runs as smoothly as possible while you give you employees a helping hand to save for their dreams of the future.

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