Employers are being tardy in setting up workplace pensions for their employees with many missing the deadline, according to research by Aviva.
New rules mean start-ups must prioritise pensions as soon as they make their first hire
According to Aviva, 25 per cent of businesses setting up their workplace pension with the provider had missed their staging date in the third quarter of 2017 and 56 per cent of businesses are setting up their workplace pension at the last minute.
This means 25 per cent of workplace pensions are set up in the month of staging and 31 per cent the month prior to staging.
Businesses that miss their staging date risk a fine and limit their options for a pension scheme because not all providers will accept ‘late stagers’.
In the second quarter of 2017 The Pensions Regulator handed out almost 4,800 fines of £400 each to businesses which failed to comply with their auto-enrolment obligations.
Andy Beswick, managing director of SME solutions at Aviva, said: “As we reach the end of staging dates for businesses it’s clear that there has been an increase in the proportion of companies missing their deadline.
“But employers need to understand the implications. Not only could they be fined but, unlike Aviva, not all pension providers will take on ‘late stagers’ so they are limiting their choice.
“Auto-enrolment has been a fantastic success so far with millions of people now saving for their retirement. But businesses and individuals need to be ready for the next phase.
“Start-ups, or sole traders beginning to take on staff, must put their pension scheme in place as soon as they hire their first employee.
“They will have to factor the contributions into their costs and be aware that the vast majority of people stay in the pension scheme.
“Higher contributions can help to contribute to a better standard of life in retirement and can be a useful tool in recruiting and retaining talented people.
“But both employers and employees need to be ready for the changes that are coming.”
The research suggests employers are getting more complacent about their responsibilities: the proportion of companies sorting out their workplace pension two months or more ahead of their staging date has dropped to 19 per cent, the lowest since Aviva began publishing the data.
But Aviva said some businesses may have only formed in the last 12 months so “haven’t had as much opportunity to plan in advance”.
Changes to the way auto-enrolment is rolled out mean there are now fewer companies that have a staging date more than two months away, increasing the proportion of companies leaving it late.
But leeway for employers has become much stricter since 1 October 2017 as new companies will have auto-enrolment duties as soon as they hire their first employee and pay them a salary over £10,000.
And from April 2018 employers must contribute a minimum of 2 per cent of an employee’s qualifying earnings, up from the current 1 per cent. Employee contributions will be rising from 1 per cent to 3 per cent.