Auto-Enrolment Pension Plan is Essential for Startup Businesses
Auto-enrolment pension plan makes it mandatory for businesses to enroll their employees into the workplace pension scheme automatically. The employers need to pay for the pension plan and ensure that all the employees are auto-enrolled into it.
What is Auto-Enrolment Pension Plan
The auto-enrolment pension plan is a part of the Workplace Pension Reform Plan introduced by the UK government. The plan requires mandatory enrolment of employees into a pension scheme. The reform is being rolled out gradually, making it essential for large companies since 2012, for medium-sized companies since 2014, and for small businesses and startups since January 2016.
The employees also need to make contributions towards their pension scheme, and the amount varies with their salary. The employers are required to match the contributions made by the employees, with a minimum contribution of 3% of the qualified salary from the employers. However, the employees have a choice to opt-out of the plan if they wish to.
Steps for Auto-Enrolment
Employers with startup businesses are required to auto-enrol their employees right from the day their first employee starts working. They are then required to set up a workplace pension scheme for their employees, assess them based on their salaries, and auto-enrol all the eligible employees. All employees above the age of 22 years and with salaries over £10,000 per year are eligible for the auto-enrolment pension plan.
It is also necessary for the startup businesses to register with The Pensions Regulator and communicate the entire information, including any changes, to their employees. The startup businesses are then required to regularly pay into the workplace pension scheme and provide a Declaration of Compliance to the regulators informing them that they comply with the law.
Why is Auto-Enrolment Essential
The auto-enrolment takes care of the future of both employers and employees. The plan ensures that all the employees are covered under workplace pension schemes and will have financial security by the time they retire. Auto-enrolment has added 10 million people to pension plans in the UK.
The UK government made the auto-enrolment mandatory to ensure that everyone saves enough for their retirement and can afford to live a comfortable lifestyle even after they retire. The purpose of mandating the plan was also to relieve some of the excess stress on the State Pension system by sharing it with the private pension systems.
Auto-enrolment pension plan ensures that employees do not need to take any action to start building their pension savings. The employers are required to initiate the pension plan and enrol all their eligible employees automatically unless they decide to opt-out.
Benefits of Auto-Enrolment Pension Plan to the Employees and Employers
The employees benefit from the auto-enrolment pension plan as it offers them financial security post-retirement. They will be closer to enjoying the lifestyle that they desire after retirement. It also makes the process easier and less painstaking for the employees. They do not need to initiate the process or take any steps towards enrolment. The employees also get some tax benefits on funds saved towards pension schemes. The basic pension tax belief is 20% while higher-rate taxpayers get 40% tax relief. Some pension schemes offer 25% tax relief and up to 45% tax relief on higher-rate taxpayers.
For the employers, the auto-enrolment pension plan helps them ensure that their employees are well taken care of. Satisfied employees tend to stay with the company longer and remain happier and more loyal. Thus, the overall satisfaction rate of employees becomes better, and the employers’ reputation improves.
Drawbacks of the Auto-Enrolment Pension Plan
The auto-enrolment pension plan has several advantages for both the employees and employers. However, it comes with spending in terms of time, cost, and efforts. The employers are required to spend time and energy setting up the workplace pension schemes, auto-enrolling their employees, and declare compliance.
The employers also need to pay a monthly or one-off set up fee for auto-enrolling their employees into workplace pension plans. The amount varies with different pension schemes and providers. Additionally, the auto-enrolment pension plan may not work for some employees who are either nearing retirement or are too much in debt. They would preferably pay their debts off rather than putting money in pension schemes.