Doing Nothing is NOT an option

Pension Auto Enrolment is approaching fast for smaller employers.  Smaller businesses tend not to have internal payroll, pensions and HR expertise to draw on, so we have summed up the key duties here:

Duties

You’ll have to automatically enrol certain workers into a qualifying scheme and make contributions on their behalf.

This could present a huge challenge for your business. You’ll need to understand your automatic enrolment duties, the impact on your business and the changes you’ll have to make.

Register

You need to register with The Pensions Regulator with how you intend to meet your enrolment duties for each of the PAYE schemes you run.

When is your staging date?

All UK employers will be affected and will have to take action by their ‘staging date’, which is determined by the business size as at April 2012.
Large employers commenced from October 1st 2012 and all companies including smaller ones will be affected by April 2017.

What do you do on the staging date?

On the staging date employers will have to automatically deduct a minimum of 1% of all eligible employees “band earnings” and pay this into the pension. Employers will also have to pay the minimum 1%. Band earnings are currently defined as all earnings between £5,824 and £42,385 (2015/16) per annum although it is possible for employers to adopt a different (higher) contribution basis.  The minimum contribution rates for both employer and employee will increase to a total of 8% by 2018.

Review your workforce

You will need to assess your workforce to ascertain which employees need to be automatically enrolled into a pension. Three categories of employee have been defined; Eligible Jobholders, Non Eligible Jobholder and Entitled Workers.

• Eligible jobholders: These are employees who must be automatically enrolled into the qualifying scheme, and the employer must pay contributions. Whilst they must be enrolled, they can opt-out once they are in the pension.
• Non-eligible jobholders: These are employees who are aged 16 to 21, or are between State Pension age and age 75, and that earn over £5,824 per annum.  They can request to opt in to the scheme and receive employer contributions.
• Entitled Workers: These workers earn below £5,824 a year and as such, they do not need to be auto-enrolled and the employer does not need to contribute on their behalf. They are allowed to “opt in” to the pension, but even if they do, the employer does not have to contribute to their pension.

Therefore, you will need to audit your workforce records to ensure you know their age and their qualifying earnings.

You’ll also need to assess your contract of employment and any related policies or procedures to ensure they reflect the new requirements.  For example to state you will be making the deductions from pay and/or amending any reference to a current contractual or stakeholder pension scheme.

In addition you will need to consider your processes (and any impact on other policies) such as whether you will postpone auto-enrolment; what you do when employees take maternity leave or are on long term sick; what you do when someone joins or leaves your organisation; how you will remember to automatically re-enrol employees in 3 years time if any choose to opt out.

Review your payroll

You will have to review your payroll every time it is run to identify any changes in entitlement, and then take action accordingly. A number of pension providers are introducing software to aid employers in this process

Communicate

You will have to provide employees with certain regulatory communications. These will feature details of when employees are being auto-enroled, together with information on how they can opt out of the pension.

What if you don’t?

You must auto-enrol your qualifying employees and you cannot encourage employees to opt out.  Failure to comply (and the regulators will be made aware via payroll RTI information and employee complaints) can result in heavy fines.

Notices and fines increasing as smaller employers stage for auto-enrolment, probably due to lack of internal expertise.

Start planning now

Please contact us to arrange a chat to see how we may be able to work with you to manage the challenges of pension auto-enrolment.