It’s now been nearly six years since changes to the Pensions Act has required all companies, under Auto Enrolment, to provide workers with a Workplace Pension Scheme.
Pensions Auto Enrolment represented a fundamental change in the way pensions are offered to employees; previously it was the Company’s decision on whether they offered their staff a pension scheme and under what rules. Pensions Auto enrolment turned this on its head as it’s now the workers’ right to be provided a pension scheme and for them to decide whether they elect to remain or leave the scheme.
Automatic Enrolment isn’t simply about providing a pension scheme. Whilst this is important, it’s also about having the ability to assess every worker and communicate to them when they are automatically enrolled into the pension scheme.
So what does this mean?
Firstly, you will need to know your Staging Date; the date when you will be required to have your pension scheme in place and be able to enrol your workers into this scheme. If you do not know your Staging Date this can be found on letters you will have received from the Pension Regulator or by putting your PAYE reference number into the Pension Regulator website, link here.
Once you know your Staging Date you will then need to prepare for this date. The Regulator advises starting the preparation at least 12 months before, however we have found that most businesses only start actively preparing less than three months before. Whilst getting everything in place is still achievable in this timescale, it does require concentrated effort.
So what will you need to do?
Firstly you will need to select a Qualifying Workplace Pension Scheme. If you currently have a pension scheme and wish to continue, you will need to check with the provider that it meets the Workplace Pension Scheme rules. If it doesn’t then you will need to either modify the scheme or select a new scheme for Auto Enrolment. When selecting your scheme, it is advisable to check on any charges, as scheme management charges vary, and what investment options and returns they provide. Once you have selected your scheme the next step is to ascertain what workers you will assess and enrol.
As you may note, the term “workers” has been used throughout this article rather than “employees” as the legislation requires you to assess this group, which could include not only your employees but also people that work for you under contract, but not paid through payroll. Also, it is worth checking your employment contracts at this stage as you may have clauses in there, that may need amending as a result of Automatic Enrolment.
Once you have established whom you will be assessing, you will then need to have the capability to assess these workers every pay period to ascertain whether they qualify for automatic enrolment. Some payroll systems have this capability, so check what functionality yours has and whether or not you will need to upgrade.
So what do you need to assess?
The assessment is based on workers’ age and earnings; whether they are under the age of 22 or above State Pension Age and earn over £10,000 a year, however this doesn’t mean if a worker earns less than £10,000 a year they are excluded, the assessment will look at each pay period so if in any pay period they earn over £833, they will meet the automatic enrolment criteria.
Workers will fall into three assessment groups; Entitled Workers (EW), Non Eligible Job Holders (NEJH) and Eligible Jobholders (EJH)
- EW and NEJH do not get auto enrolled but have the rights to opt in, to join without being auto enrolled at any time
- EJH will be automatically enrolled
On staging and enrolment you will need to communicate that you have staged and that the worker has been enrolled, this means you will need to have either an automatic solution in place, which will ensure you meet the strict communication deadlines, or have a manual process to produce letters.
When enrolled both the EJH and NEJH worker an employer will need to contribute to the scheme. Contribution rates are set currently at a minimum of 2% for the employer and 3% for the worker / employee but will rise in April 2019 to a minimum of 3% employer and 5% worker / employee; a cost that will need to be factored in when planning budgets for the year. For EW workers, only the worker pays contributions.
Once staged you will need to be able to calculate pension contributions and pay across to the scheme provider as the legislation sets out clear guidelines to when this needs to be done. You will also need to be able to manage any opt-ins (NEJH and EW) who want to join the scheme and any opt-outs (those people who have been enrolled but wish to leave the scheme).
What happens if you ignore your duties?
The Pensions Regulator has recently revealed it will carry out auto-enrolment compliance spot checks on employers across the UK. The inspections will “serve as a warning to employers that they cannot ignore the workplace pension and that deliberate non-compliance will not be tolerated”.
The Regulator has a range of penalties it can impose, ranging from compliance notices, daily fines and ultimately imprisonment for business owners who continue to ignore their obligations.
Ultimately the cost of non-compliance far outweighs the cost of compliance.
Top tips to ensure you meet your Pensions Automatic Enrolment duties:
Assessing your workforce – you will be required to assess your workforce every pay period to understand if they meet any enrolment criteria. This can be either done via your payroll system or via a third party platform. In either case you will need to understand what functionality it can perform because as an employer within the legislation you will need to:
- Assess your workforce every pay period to understand if an employee meets any enrolment trigger. If you do this via your payroll solution, has it got this functionality built in as it may be an optional extra and if you are using a third party platform, what is the process to put the pay information into the platform as it will require up to date employee and pay information to do the assessment.
- You will also need to communicate to workers / employees at various stages of the assessment and enrolment and therefore you will need your solution to be able to manage this part of the process. So understanding how this is done and what customisation is allowed, for instance adding additional information into the standard letter templates, will ensure your workers / employees are appropriately informed.
- Once enrolled you will need to take pension contributions from workers / employees and pay across to the pension provider. Whilst the deduction will come via payroll your pension provider will require a payment schedule from you to help them understand what contributions have been taken and to what pension scheme the payments you make to the provider are for. Each provider will have a requirement to what information they require from you to make these payments so to ensure an effective payment process, it is advisable that you review if your chosen solution can accommodate these requirements. As having to adopt a manual process will not only take time each pay period but can also lead to human errors creeping in. If payments are not paid across correctly and on time, the Pension Regulator could impose a financial penalty on you.
- Choosing the most appropriate pension scheme for your company. There are many pension schemes out there and whilst your only obligation is to ensure it is a Qualifying Workplace Pension Scheme, as part of your employer enrolment duties, you may want to consider:
- What charges they apply to administer your scheme as these do vary from provider to provider.
- What investment choices they provide to your employees. If you run a company that holds ethical values as a high priority, you may want to choose a provider that invests in such schemes.
- What support do they provide to both you as the employer and your workers / employees? Having a point of contact will prove to be useful when either you or your employees have an issue.
Whatever option you choose, the only option not available is to ignore your obligations. Pensions Auto Enrolment is a legal requirement for all employers.
For help and support on getting your Pensions Auto Enrolment solution right, please contact:
Mark Dyer, Director – Petaurum Solutions