Sponsored content: Are you ready for the new pension changes? All you need to know about auto enrolment
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For small businesses in Suffolk and north Essex, now is the time to get to grips with auto enrolment, says chartered accountant Keith Senior.
In the first of a series of guides covering tax, accounts and managing your money, the business advisor, of Jacobs Allen in Bury St Edmunds, explains the change in pension provision is likely to have a larger impact on small businesses.
“Larger businesses already have processes in place for making some form of pension provision for their employees but smaller businesses do not tend to have that.”
Explaining the need for these changes, he added: “It is understandable that the Government needed to do something to encourage people to take out a pension because not enough people are saving for retirement.
“Even if you did save 5% of your salary each month it would still take 20 years to save the equivalent of your annual income. The reality is that we will need to rely on the growth within a pension fund to provide a good level of retirement fund.”
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Auto enrolment will apply to all businesses employing more than the one business owner, including husband and wife companies, and employers will be required to open a pension scheme and enrol each member of staff – unless they decide to opt out.
“The Government will be contacting employers with a staging date, by which this process must be complete,” said Mr Senior. “I fear many people may be burying their heads in the sand over this, but don’t ignore this communication because there will be penalties for not meeting the requirements.
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“If you have not had any contact, you can check the staging date yourself by visiting the pension regulator’s website.”
To begin with employees will have to contribute 1% of their income into the pension fund, and employers will be required to match this. There will be a step increase, with employers required to pay in 3% by October 2018 and employees sacrificing 5%.
“That means someone earning £25,000 a year will be contributing £1,250 a year, and in real terms they will be £1,000 per annum worse off. Their employer will have to pay £750 a year in pension contributions, although they will also get some tax relief on this.”
Employees will have to decide which type of investment fund they would like their contributions put into from the choice offered by the pension provider selected by the employer.
“Buying Government gilts is considered the safest investment while there is more risk involved in say far-eastern equities.”
Reassuring those who may be struggling with the complexities of pensions, he added: “Most people perceive any financial commitment they make to be relatively complex to start with. Once it beds in, it tends to become more routine.”
From an employers’ point of view, the complexity lays in administering the scheme – ensuring that employees are making the correct contributions each month and that new employees are enrolled.
Jacobs Allen Chartered Accountants are able to offer further advice, for contact details see their website