Workplace Pensions: ? Small & Micro Employers ? Your Time Is Now

Published 12th January 2016 | View or add comments

Are you an employer with 49 employees or less? If so, have you addressed your obligation to auto-enrol your eligible employees in a workplace pension yet?

If you have, well done! 

Your employees are part of the 5.48 million who have already auto-enrolled. There is little left for you to do now other than the routine maintenance of your scheme, but please don’t leave this article just yet. In good old Monopoly terms, proceed directly to the last paragraph of this article (sadly no £200 to collect!) where you’ll find a few questions about your experiences. If you could give your thoughts or comments about the process it would be greatly appreciated as they may well assist your fellow employers who have yet to act.

If you haven’t done anything yet, don’t worry , you’re in good company as there are still approximately 1.8 million employers who haven’t signed up but there is still plenty of time to do something about it.

Essentially, as I see it, you have three main decisions to make:


Act Now or Wait?

Unless there are mitigating financial factors why wait? This isn’t one of the usual Government fads, it’s not going to go away anytime soon, especially as it is so far proving to be a success to some extent and is working with 55% of the estimated 10 million eligible employees already signed up.

Delaying until the last minute could cost you dearly, as missing your staging date can potentially have severe sanctions or fines (up to £50,000 in some circumstances) as a result.

Do it now, if you can. As a reminder your key staging dates i.e. the dates you need to do something between, are:

June 2015 to April 2017.

This date applies for businesses set up prior to April 2012. For those set up after that date, your dates are:

May 2017 to February 2018.


Take Advice or Go It Alone?

If you want to have the full protection of the regulator the Financial Conduct Authority (FCA) then take advice from an authorised, regulated, qualified Financial Adviser. Financial institutions such as banks, building societies or insurance companies will employ these.

The alternative is an Independent Financial Adviser. There will be a fee for this service, as you would expect, in addition to any fund (Annual Management Charge – AMC) or administration charge. The adviser is duty bound to tell you what these are before proceeding to give you any recommendations. This may happen even if their recommendation is to use one of the free to set up options covered later in this article.

Going it alone means just that, nobody else is responsible for the choice you make. If what you set up is ultimately unsuitable, I’m afraid that’s just tough. The only protection anyone will get is likely to come from the Financial Services Compensation Scheme and that will only be if the institution who is providing the arrangement can’t meet its financial obligation to the member of the arrangement.


Pay the Minimum or Not?

Ok, first up let’s just remind you who you have to auto-enrol and what the minimums are:

Eligible Employees

The definition of an eligible employee who must be considered for auto-enrolment is:

Anyone aged between 22 and State Retirement Age, ordinarily working in the UK and earning £10,000 or more per annum.  

The employee can choose to opt out if they want, employers can’t force, influence anyone or offer inducements to opt out – that is illegal. Should the employee chose to opt out, you as the employer are obligated to re-enrol them again after three years, however they can elect to opt out again at that point and so the cycle starts again – basically rinse and repeat every three years. 

The employee can also decide to opt in at any point i.e. they don’t have to wait until the three years are up.

Employees falling outside of the definition can ask to be auto-enrolled into your scheme, but it isn’t a legal requirement to automatically enrol them.


A minimum contribution level has been set at 2% for 2015, rising to 8% by 2017. Employers do not physically bear all of this cost, it’s basically a three-way split – a financial ménage à trois if you will. Everyone has a responsibility to pay in - you the employer, the employee and the Government (tax relief), because this needs to work. The following table shows how the contributions will be made up:

The percentages are applied between the lower and upper salary band earnings of £5,824 (£112 pwk) and £42,835 (£815 pwk). Let’s look at a quick example of an eligible employee earning £20,000 per annum (so band earnings of £14,176 i.e. £20,000 - £5,824) to see what would need to be paid:

Of course you don’t just have to pay the minimum, you can choose to pay over that but why would you? There is the obvious financial attraction to sticking with the minimum, however other employers have found that by paying more they enhance engagement with their employees because a good scheme increases their personnel’s feeling of value. Additionally the better benefits you provide will attract better quality candidates when you are recruiting, whilst also helping to retain your valued staff.

I mentioned earlier that auto-enrolment has been viewed as a success, and it is in terms of the number of employees signing up (opt out rate is circa 10%, much less than the anticipated 30%), however the amount being saved for retirement as a whole is still woefully short. Actuaries believe the rate we ought to save should be in the region of 16% of our salary each year and that’s just not happening. By choosing to pay more, you, as the employer, are playing your part to rectify this.

The Department for Work & Pensions estimates an additional £14bn - £16bn will have been saved in workplace pensions as a result of auto-enrolment, with a staggering £5bn - £6bn coming from Small/Micro employers just like you.


So hopefully now I’ve convinced you to take action you’re probably wondering who do you turn to?


Below are five of the main options. Please note that these are for information purposes only and are not specific recommendations as to what’s right for your particular circumstances. View the provider comparison table at the very end of this article to get an overview of each arrangement.

The key thing to note is that the first four are all web-based arrangements and whilst there is lots of help on hand on each website, they will not advise you what’s best for you. As there are potentially many different AE Compliant Group Pensions and providers (usually insurance companies) it’s best to go directly to their own websites as there are too many to cover in the comparison table.

There are, or course, more providers and options should you choose to search for them.


And Finally…

For those of you that have already done your bit and auto-enrolled your employees:

  • What was it like for you?
  • Who did you go with?
  • Did you opt to pay more than the minimum (don’t be too specific)?

If you have any thoughts or comments please post them so your fellow employers can benefit from the experience of others.

And for those of you that haven’t, did this help you?


About Me

I've spent over 30 years in the general insurance and financial services arenas. If anyone has any questions or needs any help understanding the regulations, please start a thread on the My Local Services Business Forum and I will try my best to help.

(LEGAL DISCLAIMER - Please note the author of this article is not an authorised or regulated adviser and the content should not be deemed as advice in any way, shape or form. All the information contained herein is freely available on various websites and is generic in its nature).

Paul Hewings | Paul Hewings - Dip PFS
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