11-01-2012

Government auto-enrolment pension rules deferred for small businesses

The government has announced that businesses with 50 or fewer employees will not have to introduce the new auto-enrolment pension schemes until 2015, rather than the original date of 2014.

Under the new rules employees who are over 22, have been employed for three months and have reached the earnings threshold at which they start to pay income tax, will be enrolled automatically into pension schemes designated by their employers – although they can choose to opt out if they wish. Employers will ultimately contribute 3 per cent of each relevant employee’s earnings (which is divided into bands for this purpose).

The introduction date for small businesses has been deferred from April 2014 to May 2015. The introduction dates for larger businesses have not changed, and the first phase, for very large businesses, will start in Autumn 2012.

The Government has also announced that the pensions contributions will not change until all businesses have enrolled their employers in an appropriate scheme – whether their own or the state-run National Employment Savings Trust (NEST). NEST will be a low-cost savings scheme, introduced from 2012, that will act as the default scheme for employers who do not have an alternative pension scheme.

Recommendations

  • Small businesses should recalculate the costs of automatic enrolment, including the additional work required to administer schemes, and budget accordingly, given the new timetable.
  • Those without the expertise to choose a scheme for their employees should consider taking advice.
  • Those with existing schemes should review the rules of their current scheme, and consider whether –and now when – they will need to change them.