If you haven’t seen it across the news, UK small businesses will by law have to offer and contribute to work-place pensions for employees earning above £10,000 a year in the year 2014/2015 going forward, so pretty much every full time employee!
In the age old words of The Hitchhiker’s Guide to the Galaxy: “Don’t Panic!” but you should be on top of this to avoid any penalties or fines. Small businesses incorporated before 2013 began the process of being enrolled this year, for everyone else, you’ve got a bit longer with deadlines set in 2017/2018.
So what exactly is this, what do I have to do and by when?
Know your deadline
Deadlines for auto enrolment are different for many businesses. So as the first step before doing anything, know when your deadline is and plan to meet it. You can find your deadline through the pension’s regulators calculator here.
Decide on a pension scheme
It’s key that once you know the date, you select a pension provider and scheme. There’s a good number of pension providers out there, with a few of the biggest players being Hargreaves Landsdown andFidelity. (They’re not paying us to say that, although I do disclose our initial investor is the 3rd largest shareholder in Hargreaves, so they came to mind!)
Pensions are a new area for many entrepreneurs (us included) and we highly recommend you do exactly what we did and either speak with your accountant who should understand this and know options or take a look yourself using tools like Unbiased for finding independent financial advisers that can help.
There’s a big difference in pensions schemes in terms of cost, benefits and investments. It’s well worth taking a look yourself and speaking with someone who knows the score and has your best interest at heart, because you’re paying them, because they think your awesome or both!
Create your pension budget
Don’t worry, the UK government isn’t making you contribute 1700% of your employees salaries to a pension, by 2017 though you must be paying the minimum rate of 3% of basic pay. Still, if you’re a small business, are growing and employing a bunch of people that’s not a small amount of money, i.e. If your salary bill for 6 employees is £180,000 year, you need to pay £5400 a year to a pension. You can work out your exact contributions here at the pension regulators site.
Now, that likely isn’t in your budget and you don’t want to close down the Friday startup beer fund, so it’s important you build in your pension costs into your financial plan. On the plus side your national insurance bill will be lower, as contributions for employee pensions will come out of gross earnings, so NI pay will be less.
Never fear, financial advisor is here
Now if you know an extraordinary amount of pensions you probably don’t need an advisor but we highly recommend you get one if you don’t or research and use comparison tools/ speak to companies to find the right fit for your needs. As with anything related to the HMRC the standard line is to put it off to the last. With pensions auto enrolment we recommend you get on it now, as demand is increasing as more small businesses come on-board and thus options are lowering and prices are going up!