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Auto-enrolment and workplace pensions

Paul Lindfield of Manchester-based chartered accountant Sedulo looks at business owners' responsibilities under auto-enrolment.

The Government has introduced automatic enrolment (AE) to encourage more people to save for their future rather than just reply on the state for their retirement benefits. This means that employers will need to automatically enrol some workers into a pension scheme and give other workers the option to join.

This is happening as part of the radical pension reforms and is ultimately led by the fact that the state pension cannot continue to provide benefits at the same levels over the long term. At the core of the Government's workplace pensions reform is a requirement for employers to automatically include certain employees in a qualifying pension scheme within a strict timescales, and without the employees having to provide any information or make any choices.

The employee's only decision is whether to opt-out or continue with pension membership. This places the responsibility squarely on the shoulders of the employers on many different levels.

You have many choices and decision to make as a business and getting it wrong could be very costly now - and potentially in the long term. Seeking professional independent advice for auto enrolment in Manchester will help you coordinate and implement a robust project plan.

The minimum contribution level required for an automatic enrolment scheme is based on qualifying earnings. Qualifying earnings are a band of earnings of more than £5,772 and £41,865 for 2014-15 tax year and are expected to change each year.

Qualifying earnings include salary, wages, overtime, bonuses, commission, statutory sick pay, statutory maternity pay, ordinary or additional statutory paternity pay, and statutory adoption pay. The Pension Regulator (TPR) will be responsible for ensuring that you comply with your employer duties. Employer's duties are not optional.

You will need to assess your workforce initially on your staging date and at every day pay reference period, which is at each monthly or weekly payroll run, and when a worker reaches any pivotal age of 16, 22 and state pension age.

The three categories of workers are:

Eligible jobholders: Must be automatically enrolled into an automatic enrolment scheme.

Non-eligible jobholders: Have the right to opt in to an automatic enrolment scheme.

Entitled workers: Have the right to join a pension scheme.

As an employer there are various options available such as National Employment Saving Trust (NEST), converting an existing scheme to meet the required quality standards, putting in place a new scheme offered by a pension provider or using a combination of all three.

You can choose a scheme and structure that you think is the most appropriate to meet the needs of your workforce.

TIP: Start your auto enrolment project 12 months prior to your staging date and no later than nine months as you will need to make vital decisions following the assessment of your workforce, design of scheme, and tender and implementation of your staging date. Some pension providers will not offer terms with less than six months left to your staging date.

p.lindfield@sedulo.co.uk

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