Workplace Pensions - Automatic Enrolment: What you need to Know

Dan Stallard of Executive Financial Planning gives us the low down on what you need to do to comply with changes to the workplace pensions law.

Are You Ready For Auto-Enrolment?

There's been increased media activity over the last two years since the implementation of auto enrolment in October 2012 for the 'super' employers. Now though, it's the turn of the SMEs, although in mere numbers of employees alone these figures may be smaller, however; the number of employers who will be staging this year and next at its peak will exceed 100,000 in any one month. Therefore, have you considered the implications or even budgeted for AE? The demand for advice around AE is going to be high and the supply of qualified advisers is unlikely to be able to cope with the demand.

Auto-enrolment legislation states that employees must be enrolled into a compliant pension scheme with the first assessment of new staff on their first pay date. Postpone can be used to soften the blow of such tight timescales but must be used correctly. 

When does AE affect me and my company / employer?

Every employer will have a date from when the automatic enrolment duties come into force for their business. This is called an employer’s ‘staging date’. Automatic enrolment is being staged in over a period of six years, which started with the largest employers in 2012.

Staging dates are based on the size of an employer’s PAYE scheme on 1 April 2012 – the more people in the PAYE scheme at that time, the earlier the staging date. If you use more than one PAYE scheme, your staging date is based on the total number of people in the largest one that you use.

What are the cost implications of AE?

Costs for AE will vary depending on the size of your company and the basis you select for contributions levels, these vary from total pension contributions of 7%, 8% or 9% with a minimum level of employer contribution of either 3% or 4%.

How and when do I assess my workforce?

Your employees will need to be categorised into three different groups, Eligible Jobholder, Non-eligible Jobholder and Entitled Worker and these categories must assessed at every pay date whether weekly or monthly paid.

What is an Eligible or Non-eligible Jobholder or Entitled worker?

This will form part of the assessment of your workforce but is linked to age and earnings. This will then have a chain reaction around communication, auto enrolment in to your pension scheme, contribution collection and the opt-out process.

Is my current pension scheme acceptable?

You may have a pension scheme in place that complies with AE, but you must review this to ensure that all AE criteria for joining, contribution levels etc. are met.

Communication to employees

You must communicate to employees before, during and after AE, this can be a large task in itself ensuring that deadlines set out by the Pensions Regulator are met.

Fines 

Fixed penalty notices (£400) and Escalating penalty notices (£50-£10,000 per day depending on the number of employees) and civil penalty notices up to £5,000 for an individual and £50,000 for an organisation, these are just a couple of the fines that are already being imposed on employers for not complying. This could lead to court action for continuing offenders. 

Opting Out

Employees can opt out of auto-enrolment but not until they have first been auto-enrolled. As an employer you must not be seen to induce an eligible Jobholder to opt out by way of bonus, increase salary etc. and as such these inducements if found guilty will carry high fixed penalties and fines as above. 

Administration

• You will need continually assess your workforce and contribution levels
• Ongoing verification that your scheme will meet the quality requirements
• Scheme returns
• Opt outs including the re-auto enrolment of staff every three years

Where do I start?

The first thing you should do is find out your staging date. Once you know when this is, you can start planning to make sure you’re ready in time.

Start planning early

You’ll need to make some changes to allow for automatic enrolment, such as:

• Setting up a pension scheme or modifying an existing one
• Making any necessary changes to payroll so it can handle the new requirements
• Putting systems in place to monitor the ages and earnings of your staff (your payroll may be able to do this)
• Writing to your staff

Executive Financial planning can help you with all of this and if you would like to speak to us or arrange an appointment, please get in touch by calling 01793 861770 or emailing [email protected]