All British businesses, whatever their size, will be expected to offer employees the chance to join a workplace pension scheme. The new scheme will start, as expected, in 2012, and all employers will need to play a part by September 2016. It will mean the automatic enrolment of all workers, not already members of a qualifying pensions scheme, into a savings fund.
Employers with fewer than 50 members of staff can, if they wish, use a state-sponsored scheme – the National Employment Savings Trust (Nest) – rather than establish a workplace pension scheme of their own.
Under the new rules, all employers will be expected to provide a pension scheme for employees aged 22 or more and currently earning more than £7,475 a year. The new pension programme will begin next year, with automatic enrolment starting in October 2012. Initially, the largest employers will have to sign up first; the smallest firms won’t join until September 2016.
Employer and employee contributions will also be introduced on a phased basis. Until October 2016, the minimum overall level of contributions will be 2 per cent, with 1 per cent being made by employers. From October 2016 to September 2017, the total contributions will be 5 per cent, with 2 per cent being made by employers. From October 2017, the total minimum contribution level will be 8 per cent, with employers paying in a minimum of 3 per cent of annual earnings, employees 4 per cent and 1 per cent coming in tax relief from the government.
However, one business group has voiced concerns about the cost to small employers. The Federation of Small Businesses (FSB) has said that the changes could end up costing the average small firm – one with four employees earning an average salary of £25,000 – an extra £2,550 per year in administration and pension costs. The government has calculated that the administrative cost to very small employers will be just £46 per each of four employees.
Running a payroll can be a complicated, time-consuming affair. Many employers find it simpler and more cost-effective to outsource instead of investing valuable effort in administration. If you would like to discuss how we can ease the burden, why not get in touch?
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