If you run a small business or employ a nanny or carer, you may need to start paying into a pension for them as part of the Government's next phase of auto-enrolment.
From today, around 14,000 small and micro businesses that employ less than 30 workers will be phased into the Government's automatic enrolment scheme and tens of thousands more will come on board by 2018. See MoneySavingExpert.com's Pension need-to-knows guide for the 15 key points for retirement saving.
It means that employers will need to sign up workers aged between 22 and state pension age who are earning £10,000 or more. So firms such as hairdressers and grocers will be included, and in some cases, those who employ just one person such as a nanny or a carer.
Auto-enrolment was set up amid concerns that people are living longer but not putting enough money aside for their retirement. It started in autumn 2012 with the largest companies – which tend to have the most experience of pensions and explaining their benefits to workers – joining up first, followed by medium-sized companies.
More than five million employees have already been placed into workplace pensions, and eventually as many as 1.3 million employers will have automatically enrolled up to 10 million eligible workers into a workplace pension scheme.
So far, around nine in 10 people who have been put into a pension via auto-enrolment have chosen to stay in it. Employees have the right to opt out of the scheme, but they must be enrolled before they can do so.
Fines for failing to comply
Employers that fail to comply with their duties could face a fixed penalty notice of £400. If they continue to ignore their duties, they face an escalating penalty of between £50 and £10,000. Larger companies will tend to face larger fines than smaller ones.
The Pensions Regulator says that so far, escalating penalties have been used on only a handful of occasions. It says that it does not want to fine businesses, but rather that it wants to work with employers to help them meet their duties.
Employers can check their 'staging date' – when their auto-enrolment duties come into effect – using a tool on the Pensions Regulator site. The scheme is continuing to roll out over the next few years depending on the size of the organisation. The Pensions Regulator advises that employers should allow up to 12 months to prepare.
Under auto-enrolment, a percentage of the employee's pay is automatically put into a pension. The employer also contributes, with government contributions also being made through tax relief.
Employers' minimum contribution rates into workplace pensions are being increased in stages. Currently employers must contribute 1% of an employee's qualifying earnings, but from October 2017 this will increase to 2%, and from October 2018 it will increase again, to 3%.