Auto Enrolment

In 2012 the law around workplace pensions changed placing a duty on employers to automatically enrol their staff into a workplace pension and make contributions toward that scheme. This legislative change was driven by the increasing aging population and the small number of people saving for their retirement. The pension reforms were introduced for the largest businesses first, but all businesses must now be compliant (as of 2018).

Your staging date was dependent on the size of your PAYE scheme (further details below).

This guide will take you through your responsibilities as an employer to be compliant with these proposals, which involve the following actions:

  • Choosing a qualifying pension scheme
  • Automatically enrolling eligible workers and letting them know
  • Paying employer contributions

The Pensions Regulator, the body responsible for enforcing these reforms, has developed a seven step guide for employers to be compliant. The full guide is available here; however this guide focuses on the first four steps and has additional information postponing your automatic enrolment responsibility, auto enrolment costs, employee “opt-out” and penalties for non-compliance

Steps to Prepare for Auto Enrolment

  1. Find Your Staging Date
  2. Who is Eligible
  3. Assess Your Pension Arrangements
  4. Communicate to your staff
  5. Automatically enrol your ‘eligible jobholders’
  6. Register with The Pensions regulator and keep records
  7. Contribute to your worker pensions

Step 1 – Find Your Staging Date

Big businesses started to enrol employers into compliant pension schemes first but smaller businesses staging dates started in 2014. It was recommended that you started preparing for auto enrolment 18 months before your staging date. Your staging date was dependent on the size of your PAYE scheme. The Pensions Regulator developed a tool to find your staging date here. You required your employer PAYE reference.

Step 2 – Who is Eligible?

An eligible worker is an employee who meets the following criteria:

  • Is aged between 22 and state pension age
  • Works in the UK
  • Currently earns over £10,000 (2018-19)

Workers aged between 16 to 22 and state pension age to 74 must opt-in to the pension scheme after your initial staging date.

Step 3 – Assess your Pension Arrangements

If you already have a pension scheme in place and want to use it, you’ll need to check with your scheme provider whether it can be used for automatic enrolment. If not, you may need to choose a new pension scheme.

An automatic enrolment scheme must meet the automatic enrolment criteria, the qualifying criteria and the minimum requirements. An employer must ensure that their pension scheme meets the criteria to be an automatic enrolment scheme if they want to use it for automatic enrolment, or for enrolling any jobholders who have opted in.

The Pensions Regulator has published a series of guidance and resources on auto-enrolment here.

The Government has created the National Employment Savings Trust (NEST) as part of the Pension Reforms to help small employers meet their pension obligations. You can find more information about NEST here.

Step 4 – Communicating to Your Staff

Once you have a compliant scheme in place employers are legally required to write to eligible workers explaining what automatic enrolment in the workplace pension means for them.

The Pensions Regulator has developed a letter writing tool for employers to communicate the correct information to staff and meet their legal obligations. The letter writing tool is available here.

Postponement

Employers can delay their auto enrolment responsibilities for a period of up to three months but they must inform their employees if they intend to delay. This communication must include:

  • That automatic enrolment has been postponed.
  • The deferral date.
  • That on the deferral date, if they meet the criteria to be an eligible jobholder, they will be automatically enrolled

The deferral date is the last day of the postponement period. It is key for the employer as it is the date on which they must assess the worker.

Further information on auto enrolment postponement and notices to staff is available here.

Auto Enrolment Costs

The auto enrolment minimum is currently 5% of qualifying earnings of which at least 2% must be paid by the employer. In April 2019 this rises again to  of 8% qualifying earnings  of which at least 3% must be paid by the employer.

  • 2018-19 - minimum contributions are 2% from the employer and 3% from the employee.
  • 2019 onwards – minimum contributions are 3% from the employer and 5% from the employee.

Auto Enrolment Opt-Out

Employees have the opportunity to ‘opt out’ of automatic enrolment. The rules around employers and auto enrolment opt-out are very clear:

Employers cannot:

  • Offer incentives to workers to opt out of their workplace pension
  • Offer incentives to workers during recruitment or imply that a worker can only be employed if they opt out of their workplace pension
  • Unfairly dismiss a worker because they stay in their workplace pension.

Before a jobholder can choose to opt out of pension scheme membership, they must:

  • have become an active member of the pension scheme under the automatic enrolment or opt in provisions, and
  • have received the enrolment information from their employer.

The last point is important to ensure the jobholder will have been provided with sufficient information about the effect of the enrolment, so they can make an informed choice about whether to opt out.

There are specific timescales during which jobholders can opt out of active pension scheme membership. They can only opt out during what is known as the ‘opt-out period’, which starts after active membership has been achieved i.e. you pension provider has been notified and the employee has received information on the pension scheme.

Further information on the “opt-out” is available here.

Penalties

It is set out in the Pensions Act 2008 that the Pensions Regulator can issue Statutory Notices requiring employers to fulfil certain duties. Non-compliance with such a Notice may then result in further financial penalties.

The Regulator will have the power to issue a fixed penalty of £400 to an employer, as well as escalating penalty at a daily rate.

Number of employees / Prescribed daily rate (£)

  • 1-4 / £50
  • 5-49 / £500
  • 50-249 / £2,500
  • 250-499 / £5,000
  • 500+ / £10,000