Auto Enrolment Workplace Pensions
The Government have introduced a new pension law to get more people saving for their future. The new employer duties are being introduced over 6 years, starting with the UK’s largest companies from October 2012. As an employer, you will have new duties in relation to everyone working for you who are aged between 16 and 74; who works in the UK and for whom you deduct tax and NIC from their wages. Most employers will have to choose and contribute to a workplace pension scheme suitable for automatic enrolment which must meet quality standards. Employers will have to automatically enrol some workers into a workplace pension scheme and give others the option to join. The employer duties are not optional. The Pensions Regulator (TPR) will ensure employers comply or face hefty fines or even imprisonment!
When will this affect you?
Staging dates by PAYE scheme size (number of employees):
250-349 1 February 2014
160-249 1 April 2014
90-159 1 May 2014
62-89 1 July 2014
61 1 August 2014
60 1 October 2014
59 1 November 2014
58 1 January 2015
54-57 1 March 2015
50-53 1 April 2015
40-49 1 August 2015
30-39 1 October 2015
Fewer than 30 From June 2016
Employers need to establish their ‘Staging Date’ to determine when their duties first apply. The Pension Regulator recommends starting to plan 12-18 months before your staging date. All employers must register with The Pension Regulator within 4 months of their staging date, even if they have no employer duties for their staff.
Employers must assess their workforce to determine whether they’re to be treated as a ‘worker’. Initially this assessment is required on the staging date, but your duties don’t just stop once you’ve enrolled all your staff – they become part of your business as usual. You must assess your workforce regularly, ideally before each payroll run in order to assess all new joiners or a change of worker category. Workers fall into 3 categories:
- Aged between 22 and state pension age
- Annual earnings between £10,000 and £41,865
- Must be automatically enrolled
- Aged between 16 and 75
- Annual earnings above £5,772
- Has a right to opt-in and employers must contribute
- Aged between 16 and 75
- Annual earnings less than £5,772
- Has a right to join but employers do not have to contribute
What level of Minimum Contributions?
For auto enrolment pension schemes, the minimum contributions that both the employee and employer must contribute are being introduced gradually over time, based on a percentage of total qualifying earnings.
Staging date to 30 September 2017 – employee pays 1% employer pays 1%
1 October 2017 to 30 September 2018 – employee pays 3% employer pays 2%
1 October 2018 onwards – employee pays 5% employer pays 3%
The Pension Regulator has published over 250 pages of notes to help employers with their new responsibilities; in summary there are 33 new pension responsibilities for each employer. Read about these in our AE blog.
After you have chosen a scheme you must write to all your workers telling them what’s happening and what their rights are. You will need to review your payroll arrangements and make sure employee data is up to date. You need to pay the correct contributions on time to your staff pension scheme each payroll.
Preparations for auto enrolment will greatly impact your time. You may be able to absorb all of the preparations in-house or you may decide to bring in additional help. You may have to buy or enhance software to manage the day-to-day activities of auto enrolment. This will usually be your payroll system. Speak to your payroll provider about what they can offer. Most payroll providers should be able to provide the employer and pension provider with reports of the eligible workers and the contributions payable. Some payroll providers may even be able to make the payments to the pension provider for you via BACS.
Apart from the significant time costs, you must also anticipate the financial costs involved with auto enrolment. Financial costs will include the cost of implementing an AE compliant pension scheme as well as the ongoing employer contributions you must make. You may already have a pension scheme in place, but does it comply with auto enrolment quality standards? Your current scheme may need to be revised and this could be costly. You may need to seek advice from an independent financial advisor, where there will usually be a fee. The main area in which you may want to seek financial advice is finding a pension scheme that is most suited to your business.
For more information and guidance, go to The Pension Regulator website.
You can find out your staging date by entering your PAYE reference into the staging date tool at http://www.thepensionsregulator.gov.uk/automatic-enrolment.asp
Top Tips (from experience of AE)
- Don’t delay, start planning now – it might sound like a simple task, but do not under estimate the implementation time involved.
- Shop around – don’t assume your current advisor is offering the best solution. We’ve seen some providers charging for reports/recommendations and separately again for assessments to identify the ongoing monthly employer contributions. There are also questionable “middleware” solutions out there. It can be a minefield – try and find a trusted partner.
- If you act now (early) you’ll have the time to meet a few providers to better understand what AE is, and how you can best manage it. Leave it too late, and you might be forced into something costly and inappropriate out of necessity.
- If you undertake in-house payroll and intend to continue that way, ensure your software integrates nicely with your internal payroll processing procedures. Watch out as the likelihood is your software will need upgraded, and some providers are better than others at RTI – you also need to consider the cost of the annual software.
- If you just managed to scrape through the RTI changes last year and your current payroll solution is already stretched – seriously consider the outsourcing of payroll, as successful payroll solutions will deliver a successful Auto Enrolment solution.
- There are the risks of fines for non-compliance with a multitude of rules, although the Pension Regulator appears to be working to educate employers for now. At the moment the fining policy appears to be less aggressive than the new Late Filing Penalty regime from HMRC starting October 2014 which is likely to be a revenue winner for the Government.
- Lastly, do not underestimate the ongoing additional time involved in payroll processing and ensuring compliance with the 33 new ongoing Employer Responsibilities. Those companies with a high staff turnover will suffer the most.
AFM Solutions undertake AE pension work for clients in Dundee, Perth and Fife, but can work throughout the UK. AFM have experience of dealing with the 3 main basic and cost effective AE compliant schemes; Peoples Pension, Now Pension and NEST.
Are you Ready?
33 New Employer Responsibilities
- Nominate a point of contact
- Determine Staging Date
- Decide whether to adopt postponement of initial staging date
- And, if so, over what time period and for whom
- Decide whether to adopt postponement for new employees after initial staging date
- Comply with postponement communications – advance communications on top of those required at the tine of AE
- Identify exact number of workers
- Classify workers into 4 categories (eligible, non-eligible, entitled and other)
- Review any existing pension arrangements to see if they could be used or adapted for AE
- Provide designated communications to eligible jobholders within prescribed time limits
- Provide designated communications to non-eligible jobholders within prescribed time limits
- Provide designated communications to entitled workers within prescribed time limits
- Auto-enrol eligible employees
- Deduct contributions from pay as appropriate
- Pay contributions on behalf of eligible employees
- Have a process for opt outs
- Keeping auditable records
- Register with the Pensions Regulator
- Reporting to The Pensions Regulator
- Making repayments to employees if deductions have already been processed
- Stopping future deductions
- Re-enrolling opted out employees every 3 years
- Accept applications from non-eligible employees opting in
- Deduct contributions from pay as appropriate
- Pay contributions on behalf of non-eligible employees
- Accept applications from entitled workers opting in
- Deduct contributions from pay for entitled workers opting in
- Choose which type of pension scheme to use
- Select the earnings definition (for defined contribution) – this duty may be multiplied many times for schemes with multiple categories
- Choose a pension provider or providers
- Choose a default investment
- Provide information (as frequently as contributions are payable) to each pension provider
- Re-assess workers at each payroll and repeat the above