As a small business, how will the new pension legislation affect me?
There has been a lot of talk about the Government introducing legislation to reform pensions. Much of the fear surrounding pension reforms and Auto enrolment comes from not knowing what the requirements are, so you need to get to grips with what your business needs to do and how long you have to prepare.
In essence the legislation means that come the staging date relevant to your business, all eligible employees will have to be enrolled into a qualifying pension scheme. The business will have no choice but to incur the cost of auto enrolment, but there are ways to manage this. You can, for example, consider entering eligible employees in phases. This will reduce the sudden impact of making significant contributions for all members of staff all at once.
Detailed cash flow forecasting is also an essential part of the preparation for the arrival of a pension scheme. Use salary exchange (often referred to as salary sacrifice) to make payments to the pension scheme. This can reduce the amount of National Insurance that employees pay and could save your business considerable amounts of Employers National Insurance.
It seems that very few employers are prepared for Auto-enrolment and have considered the above points, but you can be the difference in your sector and be ready before the deadline. Before you take any action however, put your existing pension scheme (if you have one) under the microscope. What you already have in place maybe suitable for the requirements of Auto-enrolment, at worst a few tweaks may be needed to gain exemption. This could save you a great deal in time, resource, fees and worry!
You can also use the new legislation to your benefit in terms of staff recruitment and retention. The pension will form a very important part of the remuneration package and employees should understand the value of this. Educate them on what the company is offering to them as part of their employment with your business. As we said earlier, the business will have no choice but to incur the cost of auto enrolment, so you may as well ensure that employees consider the pension to be a valuable benefit.
In summary, for many business owners Auto-enrolment seemed to be the return of the Stakeholder, a Government attempt to infuse the workplace pension. However Auto-enrolment is a much more genuine vision with insurance companies investing millions into new workplace schemes, software and support staff solely for the purpose of helping firms prepare. So start early, get advice and consider all the available options for your business.
This question was answered by Gareth Edwards, Financial Planner at Mutual Finance Management LLP. He can be contacted on 0161 448 4755 for more information.
November 19th, 2012