Getting everything in place to meet the new pensions rules can take months, so farmers can’t afford to delay. Farmers Weekly asks the experts for a guide to what’s involved and how to comply with the regulations.
What is auto-enrolment?
It is an obligation on employers to enrol certain workers into a pension scheme to help people save for their retirement. The process has already affected larger businesses and many smaller businesses are now being required to comply, with all employers included by 2018.
Who is affected?
There are three categories of worker that need to be considered. Anyone aged between 22 and state pension age and earning more than £10,000/year will have to be automatically enrolled into a qualifying pension scheme, although they can subsequently choose to opt out.
This includes any migrant workers and family members who work on the farm and are paid a wage.
However, farmers also need to think about anyone else they have working for them. Some people will have staff that do not have to be automatically enrolled, but they have the right to opt in if they wish to do so (see table below). Employers are legally obliged to let these workers know they have the right to be entered into a pension scheme.
I employ only one person and they aren’t interested in the pension scheme. Can I ignore it?
No – employers have to go through the process of auto-enrolment. The rules state that employees must be automatically enrolled first and then they can choose to opt out. Farmers could face penalties if they encourage or entice anyone to come out of the scheme or refuse to employ someone who they know will want to opt in.
How long does the process of auto‑enrolment take?
The general guide is that it could take six to 12 months to complete all the required steps, although advisers say small businesses with one or two employees may find it possible to cut this back. However, some pension providers may charge more if you need to set up a scheme at short notice.
The Pensions Regulator recommends that employers start taking steps to put things in place 12 months before what is known as the staging date. This is the date automatic enrolment duties take effect for an individual business.
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How do I find out my staging date?
Farmers should get a letter at least 12 months before their staging date, or can find it by going to The Pensions Regulator website (www.thepensionsregulator.gov.uk) and entering their PAYE reference number.
Is the staging date set in stone?
The staging date can be moved forward with permission. It is also possible to postpone automatic enrolment for three months after the staging date.
This postponement option may be helpful for people who employ seasonal workers, as it may be possible to delay auto-enrolment until they have left and avoid having to automatically enrol them into the scheme.
What’s the next step?
One of the first things farmers will be asked to do is nominate a point of contact for all correspondence. The “primary contact” will be the most senior person or business owner. If someone else is carrying out the day-to-day tasks of managing automatic enrolment on your behalf, you can nominate them as a “secondary contact”.
The next job is to make an initial assessment of everyone who works for the business to find out which of the categories they fall into: will they need automatic enrolment or do they need to be given the option?
What information do I need to collect to get going?
One of the jobs worth doing early on is checking the quality of information held about workers. It is essential to ensure staff records – including dates of birth, salaries, national insurance numbers and contact details – are correct.
What are the options when it comes to pension schemes?
The pension scheme chosen must be a qualifying one for auto-enrolment. If the business already offers a company pension scheme to staff, employers will need to contact their provider to check whether it can be used.
If it can’t, an independent financial adviser or pensions specialist may be able to point to a suitable provider, although they will charge for the service.
Employers are advised to pick the provider about six months before their staging date so there is time to iron out any issues. Employees’ views can be taken into account when choosing a provider, but ultimately the choice is up the employer.
Any pitfalls to avoid?
The longer people leave it to choose a pension provider, the less choice they will have. Many of the larger providers are refusing to take on smaller businesses, because there is little money to be made from running their schemes.
Anticipating that this might happen, the government has set up the National Employment Savings Trust (Nest), which is open to all and has no set-up or administration charges for employers.
The downside is that it is an online-only service, which means people with poor broadband speeds might find it difficult to use. There is a concern generally about how the new rules will affect farmers with poor broadband provision.
What questions should I ask when considering pension providers?
The sort of things worth considering include:
- Is the pension provider well known and does it have a good track record? The Pensions Regulator has given some providers Master Trust assurance status and websites such as www.defaqto.com can be used to check the ratings of providers.
- Is the plan easy to understand?
- Does the company provide some sort of support to help with auto-enrolment administration – and if it does, what are the charges?
- What happens in the event of it going insolvent?
- What are the charges for running the plan, how are they reviewed and are they transparent? (Nest has no charges for employers; employees pay an annual management charge of 0.3% on the total value of their fund and a contribution charge of 1.8% of each new contribution into their pot. However, other providers are understood to charge as much as £1,200 to set up a new scheme.)
- Is it compatible with existing payroll systems?
- How will the pensions company engage with members (the employees) about their pension plans?
- How can employees contact the company if they have any queries?
What else do I need to consider?
A key thing to check is whether your existing payroll software is able to support auto-enrolment assessment and provide data for the pension provider.
Farmers may need to upgrade their systems or work out if there are manual ways to provide the data in the format required. Simple things such as dates being set out in an unusual way can prove a stumbling block. If payroll has been outsourced to someone else, ask them to carry out these checks.
How much will it all cost?
Sources of information
The Pensions Regulator
Much depends on existing systems and how confident people feel in tackling the process. The complexities are such that it could be worth seeking advice from an accountant or independent financial adviser.
Apart from the charges and the actual contributions, there may also be costs incurred if people need to upgrade payroll software, or if they ask their existing payroll provider to fulfil some of the auto-enrolment duties on their behalf.
However, farmers with only one or two employees and who run their own payroll might find it cost-effective to input the data manually on to their pension provider’s online portal.
In terms of the cost of contributing to a worker’s pension pot, before 30 September 2017 an employer’s minimum contribution is 1% of qualifying earnings and the employee’s is 0.8% (with an additional 0.2% tax relief). Between 1 October 2017 and 30 September 2018 this will rise to 2% for employers and 2.4% for employees (0.6% tax relief) and from 1 October 2018 onwards it will be 3% for employers and 4% for employees (with 1% tax relief).
What do I need to tell my workers?
Communicating what is happening to staff is a legal requirement, but it is it also one of the most important things employers can do in terms of maintaining good relations with their team.
As employees will have their contributions taken at payroll, auto-enrolment can feel like they are taking a pay cut, so it is important to explain what is happening and why.
Employers are obliged to write to staff within six weeks of the staging date, but more informal communications in the months before might also be useful. The Pensions Regulator website offers template letters.
What administration do I need to do after the scheme is up and running?
Employers must continue to keep staff records up to date and also details of the pension scheme they have enrolled staff into. They must monitor any changes in earnings and age so they can identify if staff become eligible to be enrolled.
Records of the contributions paid (and to whom) must be kept for a minimum of six years. Employers must also keep any details of any opt-in or opt-out notices they have had from their staff. If responsibilities are outsourced to a third party, it is important to clarify exactly who is responsible for what.
Broadly every three years, employers will also need to re-enrol staff who have opted out back into their scheme if they are still eligible. Employers also have a legal duty to complete a declaration of compliance within five months of the staging date.
Age and earnings bands for auto-enrolment pensions
Monthly gross earnings
Weekly gross earnings
From 16 to 21
From 22 to state pension age
From state pension age to 74
£486 and below
Has a right to join a pension scheme but the employer does not have to pay contributions
£112 and below
Over £486 up to £833
Has a right to opt in and the employer must make regular contributions
Over £112 up to £192
Has a right to opt in and get employer contributions
Must be automatically enrolled
Has a right to opt in
Source: The Pensions Regulator. Figures correct for 2015-16
Information for this article has been supplied by:
The NFU – union members can call NFU CallFirst for initial advice on automatic enrolment. Non-members can find some free guidance on www.nfuonline.com