The government is eager to prevent a pensions crisis and views Auto Enrolment in a workplace pension scheme as a key part of its strategy to avoid this situation. Employers who miss their deadline can expect to face steep fines which could potentially cripple a small business.
From The Largest Companies To The Smallest
Auto Enrolment started in October 2012 with companies which had 250 or more members of staff. Since then there have been a succession of implementation deadlines for companies of ever smaller sizes and by now all companies with 90 or more members of staff in April 2012 should be operating an Auto Enrolment process.
It is now the turn of SMEs to implement Auto Enrolment. Depending on the size of the company, the relevant deadline may be any time between now and 2018. Although there has been considerable publicity about the Auto Enrolment scheme in general, as is so often the case, the devil is in the detail, which it appears many smaller companies still fail to understand.
The Nuts And Bolts Of Auto Enrolment
For many SMEs this will be the first time they have had to manage pensions at all. Implementing Auto Enrolment may involve a significant adjustment of payroll processes as well as substantial administrative changes. It will also entail contacting the Pensions Regulator to confirm compliance. This all takes time.
Fortunately firms will be contacted by the Pensions Regulator well ahead of their staging date (the latest day by which an Auto-Enrolment process must be in place). In theory this gives firms plenty of time to organize their scheme, but only if they act on the notification. Indicators suggest that many firms are currently burying their head in the sand.
Those Who Fail To Prepare Should Prepare To Be Fined
Business owners can expect little sympathy if they are unprepared for their deadline. As a minimum the Pensions Regulator can impose fixed penalties and at their discretion (depending on your business structure) they can impose penalties up to £50,000. In practice fines would probably depend on a number of factors not least the number of employees affected and the reason for the delay.
Some companies may think that the option of postponement may give them an extra three months to make arrangements. Even assuming they meet the relevant conditions, this is simply kicking the can further down the road and may still not leave enough time to get everything ready before the last and final deadline.
It should be noted that under the Auto Enrolment scheme, workplace pensions operate to slightly different criteria to current pension standards. This means it is risky to assume that existing pension provisions will be appropriate. Small businesses should also be aware that the range of providers interested in their business may be very limited in comparison to the bigger companies. Nevertheless all companies must implement Auto Enrolment sooner or later and must realize now that the clock is ticking.
To put the matter in the simplest terms: Small business owners who prepare for Auto Enrolment can use any profits from their business as they see fit. Small business owners who fail to prepare for Auto Enrolment can expect to hand their profits (and possibly even more) straight over to the government in fines.