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Why all start-ups now have to offer a pension plan from the word go

Under the latest rules, new businesses have to comply with auto-enrolment legislation from the date their first employee starts

All new start-up founders now have to put pension plans in place at the same time that they take on their first employee.

While existing businesses were given a staging date by which they had to set-up a workplace pension, from October, offering a pension scheme will be as automatic as using PAYE and paying National Insurance.

More than half a million firms, large and small, that were launched before 2012 have already passed their staging date since auto-enrolment was introduced.

Since October 2017, staging dates are no longer given out as the next phase of auto-enrolment kicks in. The outstanding staging dates already given out, are expected to be completed by the middle of next year.

New businesses must now offer a pension from day one of taking on their first eligible employee, or they can apply for it to be deferred for three months.

Will Wynne, MD and co-founder of workplace pension provider Smart Pension, said: “The founders of start-ups are by their very nature, busy people – especially as they take on their very first member of staff.

“But as saving for retirement becomes part of the culture, setting up a pension will become as automatic as using payroll or registering a company.

While the three-month respite had already been in place for existing companies when they reached their staging date, it had been the Government’s plan for all new firms to offer a pension at the same time they took on eligible employees.

However, in April, new rules were introduced which means new businesses will have three months to comply with auto-enrolment legislation from the date the first worker begins to be employed by the business.

The new rules also changed the auto-enrolment “duties trigger” for new businesses, which specifies the date at which a business's duty to comply with auto-enrolment begins.

Under the new rules, new businesses will have to comply with auto-enrolment legislation from the date the first worker begins to be employed by the business.

Previously, the auto-enrolment duties so-called trigger date was the day on which PAYE income was first payable to any worker, which meant the employee could not be automatically enrolled into a pension scheme until up to a month after starting work.

How much does it cost to set up a workplace pension plan?

If you shop around, it should be completely free for employers to set up the scheme, but founders must contribute 1% of salary each month into the scheme for each eligible employee.

From April 2018, that goes up to 3% and from April 2019 it rises to 5%.

The Pensions Regulator has advice about new responsibilities and there’s more about how to get compliant here.

Smart Pension has written a free e-book aimed at helping small and medium-sized businesses and start-ups comply with their auto-enrolment responsibilities.