The new pensions scheme could be 3 pay negotiations away for SMEs. Are you ready?
“The Qualifying Workplace Pensions Scheme is potentially only three pay negotiations away for all small and medium sized businesses.” That’s the message from our recent seminar. Are you ready for the changes?
Guest speakers David Hoult, from Compass Wealth Management, and Joanna Toon, Pensions Specialist at Aegon, provided a very clear outline of the issues facing small businesses in the countdown to the introduction of new pension legislation.
We were delighted that over 50 of our clients were able to attend the seminar because it is clear that the impact on us all will be significant both financially and operationally. It is also evident that the government have been coy about trumpeting these changes. Even the “staging date” letter that all employers will receive to tell them when their duties will first apply is rather low key.
Here’s what our audience discovered.
The basic facts about the Qualifying Workplace Pensions Scheme (QWPS) are that all employers will need to:
Register with the Pensions Regulator
- Automatically enrol “certain workers” (which means almost all) into a pension scheme
- Make contributions on their workers behalf with a minimum rate of 3% of qualified earnings
- Provide workers with information about the pension legislation and how it will affect them
- Manage the re-registration process for both opt-in and opt-out workers and keep accurate records of all pension scheme activity
The basic financial impact is that you will have to contribute a minimum of 3% of qualified earnings on behalf of enrolled workers. Employees need to make an additional 5% contribution (4% + tax relief) to achieve a total contribution of 8%. Both employers and employees can exceed these amounts provided a minimum of 8% of qualified earnings are contributed.
From a financial planning perspective if you have fewer than 59 employees then you have until 2015 to work out how you are going to pay your contributions. Bear in mind that this needs to take place in the context of your existing pay structures and employment contracts – it may not be possible to offset the contribution by simple reducing pay. It is also worth remembering that employees may not respond well to a sudden drop of 4% in their wage packets. How are you going to respond to that?
After establishing that paying for the scheme could be a major headache, our speakers proceeded to tell us that it isn’t the biggest issue. We share their opinion that it the operation of the scheme that will present the most difficulties. The rules are quite complicated and will be strictly enforced, which means that you will have to spend both time and money to manage the process correctly.
What does this mean in practice?
- You need to assess your staff against 9 different worker categories to determine whether they are eligible for the scheme and at what rate they must contribute. This may require Human Resources expertise.
- You will need to evaluate which pension schemes to introduce. There is a government-backed default scheme called NEST (National Employment Savings Trust) and a variety of qualifying private scheme. Due diligence must be conducted on existing pension schemes to make sure that they qualify.
- On an on-going basis you will need to liaise with scheme trustees, manage employee enrolment, review your employment contract obligations, set up and run new payroll rules and provide the regulator with scheme returns. Non-compliance could result in fines being levied on a daily basis.
- Even if you are a sole trader or single person company you will have to continually opt out of the scheme.
Feedback from the presentations made it clear that even those attendees who were aware of QWPS were taken aback by the amount of work they were going to have to put into it. On a positive note, though, “forewarned is forearmed” and they have got the time to make arrangements and set up processes ahead of time.
We strongly suggest that you follow their lead and begin planning for the scheme now. The money side of things needs to take priority because you will have to pay your 3%. There plenty of other things that you can start doing as well.
- Check your existing pension schemes for compliance
- Talk to financial experts about new scheme options
- Make sure your current accounting system can cope or look at implementing payroll services
- Decide whether you are qualified to assess workers or if you need to employ or sub-contract HR expertise
- Think carefully about how to integrate pensions into your pay negotiations and contracts – only 3 opportunities to go. Look at ideas such as salary sacrifice that can offer both you and employees reduced NICs in return for greater pension contributions.
If you need help sorting out any aspect of preparing for QWPS then you can turn to Lewis Smith & Co. for assistance. We have made a point of understanding what the implications are for our clients and responding accordingly. Our systems are QWPS ready, which means that we can advise you directly on how to manage the accounting consequence of the changes or offer our payroll bureau service.
We have also created partnerships with other professionals such as IFAs and lawyers, which means that not only can you get help from individual subject experts but they are all ready to work together as a project team.
We are already providing no-obligation one to one reviews to many of our seminar attendees. If you would like to take up this free offer then simply call Andrew Smith or Craig Beale on 01384 235549 or email firstname.lastname@example.org.
Lewis Smith & Co. – Accountancy services for West Bromwich businesses