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A Small Business Owners Guide to Company Pensions

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In 2010 the UK government decided that all UK companies, irrespective of their size, should offer a company pension scheme or be part of the National Employment Savings Trust. The government fear that we as a nation are not saving enough towards our retirement now that the average life expectancy has increased. This means that instead of opting in, workers will now have to opt out if they do not wish to be part of the scheme.

What is Automatic Enrolment?

Automatic enrolment means that you are obliged to enter your eligible employees into a pension scheme even if they do not submit a request to participate. It was felt that many employees are missing out on saving for their future because they do not know enough about company pension schemes or because they do not get round to submitting a request to join a scheme. As mentioned above, workers can opt out of the scheme and it is expected that as many as 7million will do so. Many will feel that they can't afford to participate in the scheme and others will want to make their own arrangements for retirement.

Who Should Be Enrolled?

Any of your workers who meets the following criteria must be automatically enrolled:
-Over 22 years old and below state pension age
-Earn more than £8105 per year
-Are not already in a qualifying scheme

What Kind of Schemes Are Available?

Defined Benefit Scheme - In this scheme, you as an employer promise to pay contributions based on how long the employee remains in the scheme and how much they earn (normally at their leaving date). You may choose the level of benefits that employees receive as part of the scheme. It is your responsibility, along with the schemes trustees, to make sure you can pay the pension when the time comes.

Defined Contributions Scheme - The benefits of a DC scheme will be based on the contributions made by the employer and the employee as well as the prosperity of the investments that are made with those contributions. It is your responsibility to make sure that the correct amount of contributions are made and in a timely fashion. DC schemes are more risky for employees as the amount they will receive on retirement is not pre-set.

As well as these there are a range of hybrid schemes which employers can look at. These tend to be quite complicated as they are made up of aspects of both the DB and DC schemes.

What is NEST?

Nest was created as part of the Governments pension reforms in order to help all employers meet the new pension regulations. NEST is overseen by a non-departmental public body that is accountable to the Department for Work and Pensions. NEST offer a range of standalone funds and can be used by employers to help them meet their new obligations.

When does this all start?

Companies with over 120,000 employees were the first to start with the automatic enrolment scheme in October 2012. This spreads right through to October 2015 for businesses with 3- to 39 employees with various staging dates in between dependent on your company size. After this, if you have less than 30 employees it will depend on the numbers contained in your PAYE reference with all companies having to be involved by February 2018. See this staging dates pdf from the DWP.

When should I discuss this with my employees?

Due to the widespread media coverage of this topic in recent months it is probably best if you discuss this with your employees as soon as possible. They may have fears about not being able to afford the scheme or questions about when they will be enrolled. It is best to allay these fears and answer their questions sooner rather than later so that everyone is well prepared by the time your staging date comes round. Legally, you must write to all of your employees about your scheme. The DWP provides a range of template letters for this purpose.

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