Pension auto enrolment

Background

To encourage more people to set aside money for retirement, the Government introduced 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 employer need to do?

  • Know your staging date, this can be obtained from the website of TPR – www.tpr.gov.uk/staging
  • 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 employers 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 below the earning trigger up to £10,000.
  • Entitled workers – Aged 16 to 74 has qualifying earnings equal to or below the earnings trigger for automatic enrolment

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 employer 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.

Contributions

Contribution are payable between the lower earnings trigger for automatic enrolment and the higher threshold. Rates will be increased over time: –

Date
penalty
Total
contribution
Employee’s contribution Employer
contribution
until April 5th 2018
to April 5th 2019
6th April 2019 onwards
2%
5%
8%
1%
2%
3%
1%
2%
3%

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. 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

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.

Penalties

The Pension Regulator (TPR) holds the position of the regulator of work-based pension schemes in the UK and is responsible for monitoring the introduction of auto enrolment. TPR has warned employers about the consequences of failing to comply with escalating penalty notices (EPNs). EPNs are issued to employers that have failed with a compliance notice and a fixed penalty of £400. If the recipient of an

EPN does not comply with its requirement within 28 days they will be liable for a fine which increases daily:

  • For employers with 1 to 4 employees EPN fines increase by £50 per day, and
  • For employers between 5 to 49 employees increase at the rate of £500 per day.

Employers who deliberately and wilfully fail to comply with their duties may be prosecuted.

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