Pensions Auto Enrolment

July 31, 2014

The law on workplace pensions has changed. All employers are legally required to automatically enrol certain staff into a pension scheme and make contributions. Employers must allow other staff to join if they request to do so.

Further information can be found from the Pensions Regulator (tPR) – the UK regulator of work-based pension schemes. However, the following is a summary of the main points that all employers need to consider in preparation for automatic enrolment.

What does it mean for you?

Automatic enrolment will mean that all employers will be required to select a pension scheme for certain employees, one that meets certain legal requirements and also protects the retirement savings of their workers. If you already have a pension scheme you will need to ensure that it meets the legal requirements.

Selection of a pension scheme is potentially the easy part. Employers will be required to make arrangements to manage employee and PAYE records, constantly monitor entitlement and ensure that contributions are calculated correctly and paid over in a timely fashion.

When do I have to do this?

This depends on your “Staging Date”. This has been calculated based upon your PAYE information as at 1st April 2012 and is linked to the number of employees. Your staging date can be found at the website of the Pensions Regulator (tPR):

http://www.thepensionsregulator.gov.uk/employers/planning-for-automatic-enrolment.aspx

Our advice is not to leave this until the last minute as estimates of numbers of employers staging at any one point in time is staggering, especially as 2016 and 2017 approaches! From estimated data, staging dates from January 2016 to April 2017 will see between 100,000 and 200,000 employers per month being required to have their pension schemes up and running. This is going to place significant strain on the capacity of professional advisers, pension schemes and tPR!

Which employees does this affect?

You will have to assess all your staff for eligibility but you may not have to automatically enrol all of them. The table below outlines your duties depending on age (* state pension age) and salary of your staff member:

 

Age

Monthly Earnings

16 – 21

22 – SPA*

SPA* – 74

 Up to £481

 Has a right to join a pension scheme

 Over £481 up to £833

 Has a right to opt in (employer contributing)

 Over £833

 Has a right to opt in

 Automatically enrol

 Has a right to opt in

Qualifying earnings comprise salaries/wages, commission, bonuses, overtime and statutory payments (excluding expenses).

For automatic enrolment there are minimum contributions you must pay in order to comply with your duties. To ease the implementation of auto enrolment (financially) there is a phased level of minimum contributions:

Date

Employer Minimum Contribution

Total Minimum Contribution

 Before 30/09/17

 1%

 2%

 01/10/17 – 30/09/18

 2%

 5%

 01/10/18 onwards

 3%

 8%

Employer responsibilities

In preparation

tPR has identified a number of basic actions that an employer will need to address when preparing for auto-enrolment:

  1. to nominate a main point of contact, of appropriate seniority, to receive auto-enrolment communications from tPR
  2. to identify the business’ staging date
  3. to assess the workforce to identify all categories of worker
    • Eligible jobholders (automatically enrol)
    • Non-eligible jobholders (allow opt-in with employer contribution)
    • Entitled workers (allow joining without employer contribution)
  4. to review and/or set up pension arrangements – the National Employment Savings Trust (NEST) has a public service obligation which means that it must accept all employers that apply to join it, but there are other pension providers available
  5. to ensure your systems have been established to administer the scheme
  6. to provide information to all categories of worker confirming, for instance, contributions, amounts to be deducted from pay etc
  7. to automatically enrol all ‘eligible jobholders’
  8. to register with tPR and keep statutory records
  9. to contribute to the workers’ pensions

Ongoing duties

Employers also have ongoing duties in respect of existing staff:

  1. to monitor the eligibility (earnings, ages and changes in country of work) of ‘non-eligible jobholders’ and ‘entitled workers’ to see if they have become an ‘eligible jobholder’ and thus must be auto-enrolled (or an ‘entitled worker’ may have become a ‘non-eligible jobholder’, and must be notified of their right to opt in with an employer contribution)
  2. to comply with ‘opt-in’ requests from ‘non-eligible jobholders’
  3. to comply with ‘joining’ requests from ‘entitled workers’, and
  4. every three years, to re-enrol any ‘eligible jobholders’ who have previously opted out (‘re-enrolment’)

Employers also need to assess any new staff taken on after the staging date and comply with relevant information, enrolment and monitoring duties (as above).

Payroll processing

Some employers already out-source payroll processing and will expect their payroll service to take on the work necessary to prepare for auto-enrolment, deal with the ongoing contributions administration and the monitoring of other staff. The employer should still check and monitor the situation through service level agreements and spot checking as this is an ‘employer responsibility’.

Those with in-house payroll processing may need additional support with preparatory and ongoing contributions administration work and staff monitoring. Others may find the whole issue too much and decide to outsource payroll processing.

Related offences

The regime also imposes offences in relation to three specific employer responsibilities:

  • the duty to automatically enrol their ‘eligible jobholders’
  • the duty to repeat this every three years (‘re-enrolment’)
  • the duty to comply with ‘opt in’ requests from ‘non-eligible jobholders’

Other employee safeguards

To provide eligible jobholders, non-eligible jobholders, entitled workers and job applications with some protection against employers who decide to ignore or flout the new arrangements, a number of other far reaching safeguards are included in the legislation:

  • an employer must not take, or fail to take, any action that results in the jobholder opting out or a worker ceasing active membership of a qualifying pension scheme (eg financial inducements), or whish results in such a scheme ceasing to be a qualifying scheme
  • any jobholder’s or entitled worker’s decision to opt out of, or leave, their pension scheme without joining another should be taken freely and without influence by the employer
  • an employer must not attempt to screen job applicants n grounds relating to potential pension scheme membership (‘prohibited recruitment conduct’)

These safeguards came into effect from 1 July 2012 for all employers so compliance is required regardless of staging date. Breaching of safeguards is not a criminal offence.

Practicalities

Early feedback from employers who have already staged (generally larger companies) have reported that automatic enrolment is incredibly complex, much more complicated than Real Time Information, which was the last major change the payroll industry underwent. Many smaller companies are experiencing similar issues in terms of time and expense.

The Pensions Regulator is urging businesses to start preparing 18 months prior to their staging date to ensure they have time to get the relevant systems and processes in place. It will be a pressurised and complex process if you leave it to the last minute. Demand for pension schemes will increase dramatically potentially preventing schemes being registered on time which may result in large penalties being imposed on employers.

As it stands, approximately 30,000 businesses will be “going live” each month; at the peak time this will rise to around 200,000! It is likely that many providers will stop taking on new business. Many of the larger providers may not be prepared to take on smaller employers.

Even after implementation there will be a significant burden on business in terms of the ongoing administration. Software is available to assist with this but care needs to be exercised to ensure that resources are used effectively and that payroll and pension processing are streamlined.

The Centre for Economic Business Research has suggested that the additional administrative workload would introduce 33 extra tasks, prior to the staging date. In many cases this could equate to 103 days’ work.

For further discussions on how auto enrolment will affect you please contact us.

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