5 Myths around auto-enrolment

Experts from the government-backed pension provider (NEST) clear up the most common confusions that mystify many employers.

Myth 1 – I need to become an expert in Pensions to provide auto-enrolment to my employees

Understanding auto-enrolment doesn’t necessarily require an in-depth knowledge of pensions.

One option is to outsource all or part of the process to an accountant or payroll bureau and other intermediaries. Nest offers a free tool, Nest Connect, which helps advisers do much of the scheme administration for you.

Myth 2 – My Pension provider will sort everything out for us

Auto enrolment isn’t a one-time set and forget event, it requires ongoing monitoring and supervision. Once you’ve set up your scheme you need to calculate and pay contributions and keep assessing your workforce for anyone that needs to be automatically enrolled.

Certain activities must be repeated for every pay period. For example:

·         you must assess whether any of your workers that have not yet been auto-enrolled should be, and if they should be then enrol them

·         for the workers who are enrolled you will be working out what to deduct from their pay to make their pension contributions, setting these deductions up in payroll, telling your provider what these contributions are and then finally paying them

If you choose to get assistance from an accountant or payroll bureau they will be able to provide a payroll integrated service which will enable them to enrol your workers and pay their contributions from within the payroll system.

Myth 3 – I have to provide a pension for each member of my staff

Auto-enrolment does not apply to everyone.  There are 3 categories that your employees will fit into:- eligible, entitled and non-eligible.

A worker assessment will help employers identify which group an employee fits into. If you do this first it will make your job much easier when you come to enrol your workforce.  Again, an option here is to outsource.

Eligible workers are those who:

·         aren’t already in a qualifying pension scheme at work

·         are aged at least 22 but under State Pension age

·         work in the UK

·         earn more than £10,000 in a year (this figure is reviewed by the government each tax year).

They are automatically enrolled and you must pay minimum contributions.

Non-eligible workers can ask to be enrolled into your scheme and you must pay minimum contributions if they are aged at least 16 but are under 75 years of age and earn more than £5,824 in a year.

Employers must also enrol any entitled workers aged at least 16 but under 75 who earn less than £5,824 who ask to join the scheme, although you don’t need to pay contributions for this group.

Myth 4 – I can notify staff of auto-enrolment at our regular staff meeting

It is extremely important that communication is right from the beginning, as it can save you time-consuming questions later. And workers who hear about their new pension from their employer are much more likely to value it as part of their reward package.

This could be an issue for smaller employers who, understandably, don’t have many formalised HR communication strategies in place.

Most small and micro employers will therefore need to develop new ways of communicating and this is where providers can help.

Myth 5 – Most will just opt out like the stakeholder pension

Auto enrolment has been a great success.  Before it was implemented many expected an opt out rate of around 35%, however, so far it’s less than 10 per cent and is even lower for younger workers.

By 2018 1.8 million employers will be helping workers save for their retirement.

It is worth remembering, however,  that all workers have the right to opt-out within one month of being enrolled.

Should any of your workers opt out within the one month time frame you must pay back any contributions deducted from the worker’s pay. Any contributions you have made must be refunded to you by the pension scheme.

After the one-month opt-out period members can no longer get a refund if they decide not to be part of the scheme but they can stop contributing if they want. If they do this any contributions already paid, including those their employer has made, will remain invested in the pension scheme.