Professional body warns of workplace pension woes

With auto-enrolment into the workplace pension now in full swing, the Chartered Institute of Plumbing & Heating Engineering (CIPHE) is giving the following advice to make sure employers are aware of their auto-enrolment responsibilities.

Kevin Wellman, CIPHE CEO warned, “There is still some confusion surrounding the new workplace pension schemes. Even if you employ just one person, you are responsible for both providing a pension scheme and paying into it. For many SME’s this might be seen as an extra burden on top of the heavy demands of running a business. However, with the regulators prepared to crack down on non-conforming companies, it really is time to get your pension plans in action.”

As it stands, employees who qualify for auto-enrolment hit the following criteria:

• Aged between 22 and the current state pension age
• Earning a minimum of £10,000 a year
• Working in the UK

Those who don’t hit the criteria on age or wage grounds can join the work pension scheme, however employers don’t have to contribute if they earn less than £490 per month, or £113 per week or £452 per four weeks.

By the staging date set by the TPR before April 2018 all employers will have to provide a workplace pension scheme for their employees. Employees can opt out of the scheme after auto-enrolment if they wish.

Kevin continued, “Compared to the public sector (where pensions are seen as the norm) the construction industry has a lot of catching up to do. There is some resistance towards enforced workplace pensions, but they shouldn’t just be seen as an extra cost to businesses without any benefits. The savvy businessman will recognise that a decent pension can be great for employee retention and for attracting real talent during the recruitment process. A recent study by the Department for Work and Pensions showed workplace pensions to be the second most valued benefit from an employer to the employee.To those new industry entrants, paying into a pension will be the norm – they no longer see a state pension as a viable option to live off and will be expecting to pay pension contributions.”

Kevin also warned, “As an employer it is down to you to deduct pension payments from your employees wages and pay them into the pension scheme by the 22nd of each month. You can be fined for late payment, or if you don’t pay in the minimum contribution. So make sure your house is in order as the onus is on you as the employer, not the employee.”

Failure to comply with your responsibilities for providing a workplace pension will include the following fines and punishments:

• Fixed penalty notice: £400 if you don’t comply with statutory notices, or if there’s sufficient evidence of a breach of the law.
• Escalating penalty notice: failure to comply with a statutory notice. Prescribed daily rate of £50 to £10,000 depending on the number of staff.
• Prohibited Recruitment Conduct Penalty notice: failure to comply with a compliance notice or sufficient evidence that a breach has been committed. Ranges from £1,000 to £5,000.
• A Civil Penalty: failure to pay contributions. Up to £5,000 for an individual and up to £50,000 in any other case.
• 2 years in prison for wilful and continued neglect.

Talking of employees, they need to contribute too. So from the employee’s point of view, they will see their wages drop as soon as they start to pay into a pension. It’s vital that they understand this and that they can plan for that drop in income. The good news is that paying into a pension does come with tax benefits as payments made into a pension plan are deducted before tax is applied. For every pound paid into a workplace pension by an employee, they get an extra £1.50 topped up, so it really is free money.

CIPHE Members should look out for an announcement soon of a service to assist employers and employees in providing and managing pensions.

Workplace pensions the facts:

• Employers must currently pay at least 1% of their employee’s ‘qualifying earnings’ into a workplace pension. This will rise to 2% in the next tax year and 3% in 2019 (if approved by Parliament).
• Employees must currently pay in at least 1% of their ‘qualifying earnings’ into a workplace pension. This will rise to 3% in the next tax year and 5% in 2019 (if approved by Parliament).
• You can work out ‘qualifying earnings’ as either: o the amount an employee earns before tax between £5,876 and £45,000 a year o their entire salary or wages before tax.

Employers must:

• Pay in the minimum contributions to the pension scheme on time
• Let employees leave the pension scheme (called ‘opting out’) if they so ask.
• Employers also have to refund any money the employee has paid in, if they opt out within 1 month of joining.
• Let employees rejoin the scheme at least once a year if they’ve opted out or enrol employees back in once every 3 years if they’ve opted out and they are still eligible for automatic enrolment.