What is Pension Auto-enrolment and what does it mean for small business?

As a small business owner, did you know that pension auto-enrolment is underway and will be obligatory for companies with less than 30 staff by 2016. It doesn't apply to the self-employed but maybe now is the time to consider putting a little aside for later days. We talk to pension StartUp, Smart Pension, to get some answers.

What is auto-enrolment and why do small businesses have to be aware of it?

Auto-enrolment is legislation from the Government to ensure people start saving for their retirements. The state pension is around £7k pa but the average wage is around £26k pa so people who haven't made any provision for retirement will see a huge drop in income. The aim of auto-enrolment is to encourage employees to start saving in their own personal pension.

Over the next few years, every business in the UK has to offer a workplace pension to their staff, or face penalties if they do not. Although this is great news for employees, it can be a hassle for business owners having to educate themselves in what can be a bewildering (and boring!) topic. With the cost to employers ranging from £0 to many thousands of pounds, pension providers that provide clear and low cost solutions will be in demand from small businesses. With over 1 million small companies yet to enrol, it's going to be a busy time for the industry.

To whom does auto-enrolment currently apply - and from Jan 2015?

Auto-enrolment currently applies to larger companies with between 59 and 250+ staff. From January 2015, companies with 30-58 staff will need to register for auto-enrolment. By 2016 companies with less than 30 staff will need to register for auto-enrolment.

If I'm a sole trader or one person Limited Company, does AR apply?

No. The auto-enrolment rules do not apply to sole traders or one person Limited Companies. However, the benefit of saving for a pension is worth considering, even if current legislation doesn't cover you.

As a self-employed person, how much should I be putting in my pension to make it worthwhile?

Anything is better than nothing, and it's never too late to start! Putting away £100 a month net from the age of 37, assuming a 7% investment return per year until retirement at 68, means that you would accumulate a pension pot of over £200,000 on retirement. If you had managed to start at 22, this pot would be over £600,000. Even if you are late to start contributing, the tax breaks make it worth your while. For example, a basic rate taxpayer will have every 80p they contribute bumped up to £1 by the Government. When it comes to retirement you can take 25% of your pension pot tax-free.

As an employer, what are the respective contributions?

Employers must contribute 1% from enrolment in the scheme. This contribution will rise to 2% in October 2017, then 3% in October 2018.

What should I be looking for in a pension provider?

As an employer you should be looking for a pension provider that gives you easy administration, transparent information, low fees and no hassle.

Tell me about Smartpension.co.uk - who is behind it and how can you help with AR?

Close friends Andrew Evans and Will Wynne set up Smart Pension to address the needs of SME pension provision. Andrew was an MD at Lloyds Banking Group and he realised that both the costs and set up process were a barrier to providing a good pension solution to small business. Will heads up a successful eCommerce business and previously was a senior manager at eBay UK. Together, they realised that the solution was to combine their knowledge of finance, pensions and technology to provide something great.

Smart Pension is free for employers and incredibly quick and easy to set up from any device. The sign up process takes minutes, far quicker than the days (and weeks!) of all other providers. We use API integration with 7 other British companies in order to provide a sign up quicker (and of higher legal standards) than any other provider. Smart Pension is free for employers and incredibly quick and easy to set up from any device. The sign up process takes minutes, far quicker than the days (and weeks!) of all other providers. We use API integration with 7 other British companies in order provide a sign up quicker (and of higher legal standards) than any other provider.

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