You may have seen the adverts in magazines, on advertising hoardings or in magazines about changes to workplace pensions. Theo Paphitis and others proudly declare that “we are all in”, but what does this mean for your business, and what will it cost you?
The Government wants all of us to save into a pension scheme for our retirement. To achieve this, it decided to make all employers put their workers into a pension scheme and pay contributions to it. This is “auto-enrolment”, and it has added a whole new set of jargon to pensions, an area which is already little understood by most people.
By 1st February 2018, all employers must have complied with their automatic enrolment duties. Here are the top 10 tips to help employers and HR teams understand and comply with the automatic enrolment requirements:
- Know your staging date, the implementation day for your business. Automatic enrolment is being phased-in, starting with the largest employers. Those with 60 workers had a staging date of 1st October 2014 and those with 50 have a staging date of 1st April 2015. Check your staging date by entering your PAYE reference number on the pensions regulator website.
- Understand what you need to do. Your business must have a pension scheme which meets certain conditions. Remember, workers have the right to opt-out of the scheme but only after they have been put into it. You must not do anything to encourage them to opt-out – you may be fined if you do. Workers who do not opt out of the pension scheme must pay contributions and you must pay contributions as their employer.
- Start planning early. Do not underestimate the amount of time it will take to comply with automatic enrolment requirements. The main compliance challenges are practical and administrative. Put an action plan in place and allow at least six months to prepare for your staging date.
- Understand how your workforce is affected. You may have varying responsibilities to different sections of your workforce. Automatic enrolment applies to “workers”, not just employees, and the definition is wide enough to include some fixed-term contract, agency (depending on who pays them) and offshore workers. Existing workers and new joiners only have to be enrolled, however, if they are aged between 22 and state pension age and if their earnings are £10,000 or more a year (£192 per week). Other workers may be able to opt-in. Remember that the starting point for automatic enrolment is that it applies from day one of every worker’s employment, and there is no minimum length of contract. There is, however, an option to postpone auto-enrolment for a particular worker for up to three months, which might save you from having to put all your short-term workers into the pension scheme.
- Understand what pension, if any, and payroll arrangements – internal or outsourced – you have. If you do not already have a pension scheme, you will need to put a scheme in place. The National Employment Savings Trust (Nest) is available to provide a compliant scheme if you struggle to find another provider. You must also ensure that your payroll arrangements are compliant and can identify when workers must be automatically enrolled.
- Decide how you want to comply with auto-enrolment. Do you want to take a ‘minimum compliance’ approach and pay the default minimum contributions (currently 1% for employers and members) and only enroll eligible jobholders? Do you want to maintain the existing contributions and arrangements – which may be more generous – if they meet the auto-enrolment requirements?
- Communicate clearly with your workforce in writing; this can be by email. There is a lot of information that you need to give to your workers. The Pensions Regulator has templates to help employers comply (http://www.thepensionsregulator.gov.uk/employers/letter-templates-for-employers.aspx).
- Remember to register your scheme with the Pensions Regulator within four months of your staging date. Maintain a clear and accurate record of your ongoing auto-enrolment compliance. The Pensions Regulator can impose escalating penalties for non-compliance with automatic enrolment requirements.
- Get help. The Pensions Regulator provides useful guidance for employers. Your current advisers may also be able to help. In addition, there are a number of specialist consultants who can advise on auto-enrolment compliance.
- Finally, remember that getting past your staging date is not the end of the story. You must continually monitor your workforce to ensure automatic enrolment compliance. Some pension schemes and payroll providers will carry out this ongoing monitoring and compliance for you, although there may be an additional fee. Do not forget that every three years you will need to undertake a re-enrolment exercise.
Ruth Bamforth is a barrister in the pensions team at law firm Gordons LLP, She has specialised in pensions law for 17 years and joined Gordons in 2013.
Ruth has an interest in the pensions issues faced by charities and is a member of the National Association of Pension Funds working group looking at those issues. She has considerable experience advising scheme sponsors and trustees on a wide-range of matters including scheme re-organisations, amendments and wind-ups. Her expertise also covers the pensions aspects of banking and corporate transactions.
Ruth is a regular writer and speaker on pensions issues and has a particular interest in client training. She is a joint author of Tolley's Pensions Law. Ruth is a full member of the Association of Pension Lawyers and is a member of the Legislative and Parliamentary sub-committee. She is a committee member of the PMI Yorkshire Group and the NAPF Northern Counties Group.
