- Why is this happening
To encourage more people to set aside money for retirement, the Government is introducing workplace pensions for eligible workers. Under rules introduced in October 2012, employers are required to automatically enrol all eligible staff into a workplace pension scheme from their staging date and pay a minimum contribution into the pension fund.
- What does the company need to do
- Know your staging date, this can be obtained from the website of the Pension Regulator.
- Assess the workforce
- Check payroll software
- Choose pension provider
- Communicate with staff
- Enrol eligible jobholders
- Register with The Pension Regulator
- Keep records
The changes will undoubtedly have financial implications and the company should plan for the additional cost of contributions and administration.
- Assess the workforce
The regulations require you to sort your employees into the following groups:
- Eligible jobholders – aged 22 to state pension age and earning over £10,000.
- Non-eligible jobholders – 16 to 21 and from state pension age to 74 earning above £10,000. Or 16 to 74 earning above £5,772 up to £10,000.
- Entitled workers – Aged 16 to 74 earning below £5,772.
Eligible jobholders must be automatically enrolled; non-eligible jobholders do not have to be automatically enrolled but have the option of opting in; entitled workers do not have to be automatically enrolled, they must be able to elect to opt in but no employer contributions need to be paid.
- Payroll software
You will have to ensure that your existing administration and payroll software can accommodate auto enrolment, payroll packages supplied by smaller firms may not be compliant. The HMRC free PAYE software is unlikely to be able to perform any auto enrolment functions at all other than handling deductions through the payroll, so you will probably need to move to a commercial system before your staging date.
- Choosing a pension scheme
Once you have completed your assessment you need to choose a qualifying auto-enrolment scheme. Further details of the minimum features can be found on the Pensions Regulator’s website or the company may wish to seek professional advice.
- Communicate with staff
Employers are required by law to write to all workers (except those under 16 and over 75) explaining what auto enrolment into a workplace pension scheme means for them. There are different information requirements for each category of worker.
Contribution are payable between the lower threshold of £5,772 and the higher threshold of £41,865. Minimum rates of contribution will be increased over time: –
|Date||Total Contribution||Employee’s Contribution||Employer Contribution|
|Oct 2017 to Oct 2018||5%||3%||2%|
- Opt out
Employers cannot avoid their obligation to auto enrol eligible jobholders into a qualifying scheme, opting out refers to a jobholder’s right to opt-out of the pension scheme after being enrolled. Opting out can only occur after an employer has selected a pension scheme and the first months contributions have been made.
If an employee then wishes to opt-out he must notify his employer using a document called an ‘opt-out notice’. Employers cannot use their own opt-out notices, these can only be obtained by pension providers or their agents, such as ourselves. Opt out notices must be kept until a re-enrolment event, which usually occurs every three years. Opt out rates have been lower than expected and for the larger employers has averaged less than 10%.
Postponement allows an employer to postpone auto enrolment for a period up to three months. It is envisaged that postponement will be used:-
- When dealing with temporary staff
- For new joiners to reduce payroll and communication administration.
- You can also postpone from your staging date, however, it doesn’t change your staging date.
You must write to tell the staff whose automatic enrolment you are postponing, you will have six weeks from the date postponement starts to write to them.
- Pension regulator
The Pension Regulator holds the position of the regulator of work-based pension schemes in the UK and is responsible for monitoring the introduction of auto enrolment. To date their role has largely been one of educating and training. However, they can issue penalty notices to punish persistent and deliberate non-compliance. Employers who deliberately and wilfully fail to comply with their duties may be prosecuted. All employers will need to register compliance with the regulations with the Pension Regulator five months after their staging date.
This article provides only a brief introduction to auto-enrolment we recommend further research is undertaken from www.thepensionsregulator.gov.uk and pension providers such as www.nowpensions.com.