The costs of complying with the new rules will depend on the size and make-up of the workforce, any pension arrangements already in place and the number of employees who are auto enrolled.
There may be costs associated with setting up a workplace pension, providing employee communications and changing existing systems and processes. Cheviot provides a range of support documents to help with this for employers using the Cheviot pension. Although auto enrolment does not require application forms, employers are required to keep detailed records.
The Government is allowing contributions to be phased in to help ease the burden on employers and employees. Contributions will start at 1% each from the employer and employee, increasing to a total of 8% by October 2018 with the employer paying a minimum of 3%. The Cheviot auto enrolment calculator will help employers understand the requirements for them.
The minimum contributions are based on qualifying earnings in a relevant pay reference period (ie weekly or monthly). Contributions may fluctuate depending on the structure of the pay.
Qualifying earnings includes:
|Contributions from Staging Date||Contributions from October 2017||Contributions from October 2018|
|1% employer||2% employer||3% employer|
|1% employee||3% employee||5% employee|
Employers may decide to pay a larger share of the 8% minimum contribution or pay additional contributions to help members save for retirement. Even an extra 1% can make a significant difference to employees’ ultimate pension.Use the Cheviot pension calculator, available online, to see the impact.
Existing arrangements may well be based on a definition of pensionable pay rather than qualifying earnings
Employers can use existing arrangements as a workplace pension if they comply with the requirements. A particular issue is likely to be the contribution structure. Existing arrangements may well be based on a definition of pensionable pay rather than qualifying earnings. Pensionable pay often excludes any elements of pay which fluctuate like bonuses or overtime. The definition of pensionable pay can be retained but the percentage of contributions may change depending on the difference between pensionable pay and qualifying earnings.
The following table details the alternative contribution structures that can be used by employers (depending on scheme rules). The Cheviot pension allows for all three structures.
|Based on||Minimum Employer contribution||Total contributions|
|Pensionalble Pay||Minimum Employer contribution 4% employer||Total contributions 9% employer|
|Pensionable Pay (provided that pensionable pay is at least 85% of total pay averaged across all jobholders)||Minimum Employer contribution 3% employee||Total contributions 8% employee|
|Total pay||Minimum Employer contribution 3%||Total contributions 7%|
Employers will need to decide how to calculate the contributions for their staff. The Cheviot auto enrolment calculator on our website can help employers look at different options.
Employer contributions have to be paid over to the pension scheme by the date set out in the workplace pension’s schedule of payments. Employee contributions must be paid to the workplace pension by the 19th of the month following the month in which they were deducted at the latest. If payment is made electronically this can be extended until 22nd day. This does not apply to the first three month’s contributions which can be retained by the employer in case the employee opts out and they need to be refunded.
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