Auto-enrolment – are you ready?
You'll have seen the adverts - who could miss Nick Hewer and the 'We're all in...' catchphrase.
And those businesses with less than 30 members of staff in April 2012 will begin to have their staging dates arrive from June 2015.
So this article gives an outline as to what AE is, how it affects you and what's involved.
Because we reckon that auto-enrolment is the biggest change to hit employers for years. The legislation is large and complex. And if you have relevant employees, then the chances are it's going to start affecting you in the next 6 to 18 months.
And please be aware that the information below is just a guide. TPR have published over 50 documents and guides to help with implementation. So if you are unsure about anything and want further guidance, please feel free to get in touch.
And be aware, auto-enrolment only applies to workers. A worker is defined as someone who has an employment contract and earns more than £10,000 a year. However directors don't count as workers so if your company only has directors and no other employees, then you may not be caught by auto-enrolment. You can read more about this here.
What is automatic enrolment?
Well, the law on workplace pensions has changed.
And that change now means that every employer with at least one member of staff has new duties, including putting those who meet certain criteria into a workplace pension scheme and contributing towards it.
This is called automatic enrolment. It’s called this because it’s automatic for your staff – they don’t have to do anything to be enrolled into your pension scheme.
But it’s not automatic for you. You need to take steps to make sure they’re enrolled.
The status of employees are shown in the table below (*SPA = State Pension Age):
And as an employer you must automatically enrol eligible jobholders into a workplace pension scheme.
Currently the earnings trigger is £833 per month or £10,000 per annum.
(The amounts shown above and below will be re-assessed annually by the Government)
However, other employees also have a right to join a pension scheme as shown below:
('Joining' a pension scheme isn't the same as 'opting in' - when an employee joins a pension scheme you don't have to follow the auto-enrolment process.)
And there's regular communication you need to have with your employees after you've begun operating Auto-Enrolment - more about that below.
The table below summarises the main duties an employer has to each type of worker - but be warned, this is by no means exhaustive!
Will it affect me?
Auto-enrolment affects anyone with an employee.
However it's important to note that if you don't meet the criteria for having an obligation under auto-enrolment then you still need to let the Pensions Regulator know that you don't have any duties to fulfill. You can do this by completing the Duties Checker here.
And the really bad news? If auto-enrolment applies to you, even if your staff don't want to join the pension scheme, you have to set up a scheme, enrol them and then let them opt out.
When will it affect me?
Every employer will be given a staging date.
To find out your staging date, simply go here on The Pension Regulators (TPR) website and enter your PAYE reference number.
If you can't find your staging date using this tool (usually if you've become an employer after 1 April 2012), then you may find your staging date here.
And if you're having difficulty working out your staging date is, feel free to give us a call or email us and we can help you (plus give you a handy summary of what you need to do (and when) before your staging date).
What do I need to do?
The first step is to determine whether you believe AE affects you. If you don't believe it does, you must let the Pensions Regulator know that you don't have any duties to fulfill. You can do this by completing the Duties Checker here.
If you believe AE does affect you then you should make sure you know when your staging date is.
Then we would recommend that you provide a contact for auto-enrolment between 9 and 12 months before your staging date. You can let the Pensions Regulator know who that person is here. This will mean that you don't miss out on any important communications.
Then you need to create your action plan. Most businesses who've successfully navigated the AE implementation have started preparing up to a year before their staging date.
Once you've determined your staging date using the TPR website, they have a handy interactive tool to help you develop your action plan for AE.
Leaving starting the process too late could end up proving very costly!
Your first step should be to review your workforce and decide who is eligible to enrol.
Then you'll need to choose a pension provider. The government have set up a scheme called 'NEST' and any employer can use this pension scheme.
There are of course many other pension providers who may be more suitable for your needs. If you need help on choosing a pension provider you may want to speak to an IFA. We can provide you with the contact details of an IFA who is dealing with Auto-Enrolment if this would help.
You'll also need to complete a declaration of compliance with the regulator within five months of your staging date, even if you have no employer duties for their staff.
And remember to keep your staff in the loop - no one likes being treated like a mushroom!
However one note of caution: If Auto-enrolment affects you, the sooner you start to look at pension providers the better. If you leave it until you receive your staging date letter, then you may find your choices limited as you will be competing for advice along with possibly 100,000 other businesses!
How much will it cost me?
There are two main costs for businesses - the actual pension contributions and the time taken for the administration (both before and after your staging date).
In terms of pension contributions, there are minimum contributions required in order for you to fulfil your obligations as follows:
Administration - before your staging date
Before your staging date you will need to assess your staff and ensure they are enrolled onto the pension scheme by your staging date if they are eligible.
Administration - after your staging date
Every paydate you will need to re-assess your employees - both to determine whether any new joiners are eligible or want to join the scheme and also to determine whether any existing non-enrolled employees should now be enrolled.
Once staff have been enrolled into the pension scheme, they have one calendar month during which they can opt out and get a full refund of any contributions.
This is known as the ‘opt-out period’. It starts from whichever date is the later of:
- the date active membership was achieved, or
- the date they received your letter with the enrolment information.
Staff can’t opt out before the opt-out period starts or after it ends. If they decide to leave the scheme outside this period, they will instead be ‘ceasing active membership’. Whether they get a refund of contributions will depend on the pension scheme rules.
But beware - there are hefty fines for employers who are believed to have 'coerced' or 'encouraged' their employees to opt out.
Self-employed and directors of companies
As mentioned above, the following people are not treated as workers and so the employer duties (and auto-enrolment) don't apply to them:
- Directors of companies unless they have a contract of employment to work for that company and there is someone else employed by the company under a contract of employment.
So if you're running your own company and it's just you, or you and your wife, as directors then you probably won't need to worry about auto-enrolment.
However, as mentioned above, it's important to note that if you don't meet the criteria for having an obligation under auto-enrolment then you still need to let the Pensions Regulator know that you don't have any duties to fulfill. You can do this by completing the Duties Checker here.
- Let TPR know who to contact: https://automation.thepensionsregulator.gov.uk/Nomination
Or give us a call on 01202 048696 and let us take the headache away from you!
We can help you implement Auto-Enrolment and also help you run your payroll after you've passed your staging date.
Our fees for implementation start from £250+VAT (depending on number of employees and length of time before staging date) and our monthly charges for fulfilling your AE duties after staging date are from £3+VAT per employee per pay run.