Businesses across Wales are sleepwalking into a crisis as new legislation to ensure every working person is signed up to a workplace pension scheme is being overlooked or ignored.
The biggest change to the UK pensions system in a generation is already underway and will affect every single business in the country.
The largest companies in Wales, with 800 or more employees, are already signed up to the new auto-enrolment pension programme, but the next tranche of businesses with workforce numbers between 250 and 799 have to be operating within the system from this April.
Small and medium-sized businesses of up to 249 workers are due to join the scheme in August next year when every working person aged 22 and over and paying tax will have to be signed up by his or her employer into a workplace pension plan.
The revolution will provide the majority of the 13 million people in the UK, who would have currently retired with just the state pension to survive on, with a viable and valuable second source of retirement income, but leading Wales-based financial planning and pensions specialists Seer Green fear that the majority of businesses are continuing to turn a blind eye to the legislation.
The scheme has a financial impact on both employees, who will eventually have to contribute a minimum of four per cent of earnings each month into auto-enrolment, and employers who not only have to contribute a minimum of three per cent of the value of the employee’s qualifying earnings (including any bonuses, overtime payments etc), but have the headache of having to administer the pension scheme for the workforce.
And the penalties for any employer failing to take part in auto-enrolment will be severe, with daily fines of up to £10,000 a day and up to two years’ imprisonment for the owner of any business who continues to flout the new pension law.
Seer Green director and pensions expert, Siobhan Mail, said: “Despite having had 18 months to prepare for the onset of auto-enrolment, the vast majority of businesses in Wales are sleepwalking into an on-rushing pensions crisis. They have literally put the new pension plans into a pending file hoping they will go away.
“They are just not geared up for the consequences of having to provide a pension for their entire workforce – let alone considered the implications, both financially and administratively – to ensure they remain compliant with the law.
“Those implications are potentially really quite life-changing for businesses of all sizes and we are urging every business owner to sit up and take notice of what is about to affect them – and seek advice as a matter of urgency. We’ve been talking to all our clients for well over a year about this issue and stressing that planning for change is crucial. Smaller businesses certainly have the opportunity to prepare early, and soften the blow which is coming their way next year.”
Siobhan added: “A small business with 25 employees, for example, has until August 2014 to get itself ready for pension auto-enrolment, which gives it the chance to budget for the extra financial burden that providing a pension for every eligible member of staff will create.
“Make no mistake about this, auto-enrolment will be a major headache for business, and the biggest pain for employers could well prove to be the issue of compliance. As the law stands, there will be a requirement on every employer to pay into a pension for every eligible employee – but no requirement on that member of staff to stay in the scheme. If the employee opts out, the employer has to continue putting in money for three months – and then claim his money back.
“But it gets worse. Exactly three years from the original opt-in date, that same employer has to re-register the member of staff who decided not to take part in the scheme and go through the whole process again.
“Then there’s the issue of keeping records for every employee – which ones are opted in (and how much has been paid into their pension pot), which ones are out, and even which members of staff have since left the company and what happened to their pension benefits. And those records have to be kept for at least six years for presentation to the Pension Regulator on demand.
“We have been working with and preparing our clients for this for the last 24 months and have a unique software system in place that will make life a lot easier for employers when it comes to them having to administer a workplace pension scheme.
“Let’s face it, planning ahead for something like this will not yet be on the radar for many businesses, but auto-enrolment is one issue where they cannot afford to be reactive only at the last minute – otherwise they will pay heavily for the lack of preparation.”