If you haven’t seen it across the news, UK small businesses are now required by law have to offer and contribute to workplace pensions for employees earning above £10,000 a year in the year, in practice that means pretty much every 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. So what exactly is this, what do you have to do and by when? Deadlines for automatic enrolment have now passed, meaning you need to be enrolled or enrol as soon as possible.
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 and Fidelity.
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 regarding 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 you’re 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, the minimum workplace pensions contribution must be 8% with employers paying a minimum rate of 3% towards this total (2019/2020). Still, if you’re a small business, are growing and employing a bunch of people that’s not a small amount of money. 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.
Speak to a financial adviser
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!