In force from October 2012, this legislation places the onus of pensions firmly onto the employer even if they only have 1 employee. Employers will need to “auto-enrol” all relevant workers into a qualifying pension scheme if they are not already members of one.
1. Identify your staging date (the day you must start auto-enrolment). Large businesses started from 1 October 2012, but small and medium businesses are phasing over the next few years, up until 2018. It’s crucial to understand when your staging date is – the closer you leave it the more expense you’re likely to incur.
La Playa can identify your staging date – all we need are the last two digits of your PAYE reference number.
2. Check in advance whether your existing pension scheme meets the minimum requirements for auto-enrolment. These include minimum contribution levels (for defined contribution schemes). You should automatically enrol ‘eligible jobholders’ without asking them to provide any information, complete any paperwork or detail how much they wish to invest etc.
We can help you amend your current scheme or make recommendations as to a suitable alternative.
3. Identify your eligible jobholders. You’ll need to assess your workforce and establish which of them are and aren’t in a compliant scheme.
Eligible jobholders could include employees, temporary workers, directors employed under a service contract and agency workers (who are considered to be employed by whoever is responsible for paying them). All eligible jobholders aged between 22 and state pension age who earn enough to pay income tax will need to be automatically enrolled in a compliant scheme.
Employers need to be aware of their duties to their entire workforce and how they identify eligible workers and what they need to do to comply with the regulations.
4. If any eligible jobholders aren’t enrolled in a compliant scheme, you could consider using NEST (The National Employment Savings Trust) or a trust-based or contract-based scheme to meet the auto-enrolment requirements. The suitability of any scheme must be assessed to ensure it meets the qualifying criteria and requirements. Non-eligible jobholders also have the right to ‘opt in’, and as the employer you must make contributions for them. Entitled workers have the right to join a pension scheme but the employer doesn’t have to contribute.
5. Employers using a defined contribution scheme or NEST will need to check that they are satisfying the requirements for minimum contribution levels. For auto-enrolment purposes, the required minimum contributions are based on a definition of earnings which includes salary, wages, commission, bonuses and overtime although other contribution levels/earnings definitions are possible as long as the minimum criteria are met. Contributions to an existing scheme may be based on a different definition of earnings, so company payroll systems and pension schemes may need to be updated.
You can decide how contributions are calculated but you’ll need to certify that they meet the minimum requirements. An incorrect or false certification could incur financial penalties.
6. You can put a three month waiting period in place before an eligible jobholder needs to be automatically enrolled into a workplace pension (but no longer). Eligible and non-eligible jobholders can, however, opt in during the waiting period. This is called postponement and a slightly different set of duties will need to be adhered to.
You’ll also need to establish new processes to identify auto-enrolment triggers for existing employees and new joiners (eg when they turn 22 or reach the minimum level of earnings).
Individuals can also opt out of scheme membership. Someone who has opted out can apply to re-enrol, but only once in a 12-month period. Automatic re-enrolment will apply every three years, although employers will have some flexibility about when re-enrolment should take place. A joined-up approach will involve HR and payroll departments.
7. You’ll need to communicate with staff about auto-enrolment and explain that they have the right to opt out if they wish. Employers must also report to the Pensions Regulator to confirm that they have complied with their auto-enrolment obligations. Timely information and good record keeping is essential to ensure continued compliance.
8. As an employer you can’t encourage jobholders to opt out of auto-enrolment nor can you encourage job applicants to do so during the recruitment process – if this happens, penalties will apply. You should bear this in mind when communicating with your workforce about the new requirements, and take great care when answering employees’ questions. No advice must be given or inducements made to opt out.
9. HR strategy and remuneration policy. Administration and payroll processes will need to be adapted; it may be sensible to put together a team responsible for implementing the auto-enrolment requirements within the company.
You could use a third party to take care of the process but you’ll need to make sure you’ve got robust contractual terms in place. Many employers don’t have the budget or capabilities to deal with all the issues of auto-enrolment and may need to out-source certain duties. However, the burden of responsibility ultimately lies with you so it’s important to have an overview of the processes involved.
10. *Escalating penalty notice*
If an employer fails to comply with the original compliance notice and subsequent fixed penalty notice, they will face daily escalating penalties. These will start to be calculated from the date specified in the fixed penalty notice and will depend on the size of the employer.
Number of people* Daily Rate
500 or more £10,000
*This is generally the number of workers in the employer’s PAYE scheme or the number of workers affected by unpaid contributions. Where this number is not readily available, The Pensions Regulator may use various sources of information to estimate this number.
We’ll guide you through the process with as much, (or as little) information as you’d like, helping you create the right solution for your business. To talk through any of the steps mentioned please email me, or call on 01223 200655. Mention this article and you’ll be entitled to a free initial consultation.
Lewis & Jill B
La Playa’s intelligent approach to financial services is founded on absolute integrity, an in-depth understanding of our clients, a high calibre team of advisers and a commitment to excellence in service.
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