Auto Enrolment
Auto Enrolment workplace pensions are the biggest change in pension legislation for years. There are many misconceptions about them and how they work, but this is the low down on what you need to know.
The Government is forcing employers to automatically set up and make contributions to a work place pension scheme for most employees. Minimum employer contribution levels have been set which will be phased in over time.
It will affect all employees aged between 22 and the state retirement age, who have qualifying earnings currently over £10,000 per annum. But even those outside this range will need to make other arrangements. Employees will have to make contributions too, again with defined, minimum contribution levels.
Employees can opt out of the pension scheme if they wish, but not until after they have been automatically enrolled. If they do opt out, they will be automatically re-enrolled after three years. Any employee currently earning over £5,824 per annum can voluntarily opt into your pension scheme & minimum employer contributions will apply.
When Auto Enrolment will affect your business (Your Staging Date)
Every employer in the UK has been given a staging date, based on the number of employees on their payroll in April 2012. This is the start date for employees to join a pension scheme under Auto Enrolment. Auto Enrolment has already come into effect for the very largest employers and by April 2015 every employer with over 50 employees will have been included.
Employers can start a pension scheme for Auto Enrolment ahead of their staging date, subject to certain conditions and having given notice to the pensions regulator.
What you need to do in advance of your staging date
You need to assess your workforce ahead of your staging date to ensure you have the appropriate pension arrangements in place for each category of employee. Employees will be categorised as Eligible Jobholders, Non-Eligible Jobholders or Entitled Workers. This is determined by their age and earnings. There are different processes for each category of employee that will need to be followed. The initial assessment will need to be followed up by an accurate assessment on your organisation’s staging date.
You will also need to make sure that the pension scheme that is put in place (or you already have in place) is suitable for Auto Enrolment. Broadly speaking, there must be no barriers to automatically enrolling employees, no consents required from employees and no conditions can be attached. All employers will have to register with the Pensions Regulator shortly after their staging date, giving details of their Auto Enrolment compliance.
Once this initial assessment is complete and the appropriate pension schemes is in place, you will need to plan for your Auto Enrolment date.
Eligible Jobholders not already in a qualifying scheme will need to be enrolled in an appropriate scheme with membership effective from the enrolment date. Payroll records will need to be updated with the appropriate pension contribution deductions processed. It is also necessary to communicate with the employees within 6 weeks of the Employer Staging Date, giving the employee comprehensive information about the pension scheme, the fact that they have been automatically enrolled and also information regarding their right to opt out.
Employees have up to 1 month from the date the pension contract information is sent to them to opt out. If a valid opt out notice is received by the pension scheme and employer, the membership of the pension scheme must be cancelled and any contributions made by the employee refunded.
Non-eligible jobholders and entitled workers must be treated differently, with different communications being sent to them explaining their different pension options.
These are all areas that The Auto Enrolment Company can assist you with, and we are available to help guide you through the process.
Compliance and Record Keeping
It is necessary to show evidence that you are fully compliant. That all Auto Enrolment regulations have been actioned at the right time and managed properly. This means keeping sufficient evidence that the delivery of the appropriate documentation took place at the right time, to the right employees, on the correct staging date and the same process was applied to new company employees joining after that date. The evidence must be kept for a period of up to 6 years and must be available to be produced to the pensions regulator if requested.
It is worth noting that the government is very serious about pension reform and has introduced a series of escalating, fixed fines for organisations that do not comply, ranging from £50 up to £10,000 per day, depending on numbers of employees. So getting it right and setting up Auto Enrolment schemes at the right time is very important.