Westbury Accountants Guide To Auto Enrolment

Here we look at what you as an employer needs to do to implement auto enrolment.

The government has changed the law relating to workplace pensions, which became effective in 2012, and has been brought in to ensure an easier way for people to save into a pension for their retirement. The new regulations, known as Automatic – or auto – enrolment means that all employers must provide a qualifying pension scheme, and enrol eligible staff.

The employer and the employee pay in to the pension, and the government contributes in the form of tax relief.

Know your staging date

Your staging date, which is the date on which you need to provide the pension from, depends on how many employees you had in your PAYE scheme on 1 April 2012. Using your PAYE reference, you can find out your exact staging date on the Pensions Regulator website. The table below gives an outline:

Plan what you need to do

There is an action plan chart on the Pensions Regulator website that sets out each step and how long to allow for each step in relation to your staging date. The Pensions Regulator will send monthly reminder emails and guidance to your nominated contact, which you enter on the website.

Who is eligible?

Whilst your staging date is based on the size of your payroll, not all of your employees will qualify for auto enrolment.  You have to automatically enrol all staff who:

  • are between 22 and state pension age;
  • work or ordinarily work in the UK; and
  • earn more than £10,000 (2014/15).

These are known as eligible jobholders.

If you have workers who are part-time, or, on short-term contracts, or on maternity, parental or carer’s leave, they will have to be automatically enrolled providing they meet the above requirements.

Some staff will be able to opt in to an auto enrolment pension scheme if they wish, even if they don’t meet the criteria outlined above. These include staff who:

  • are between 16 and 74;
  • work or ordinarily work in the UK; and
  • earn above £5,772 but not more than £10,000 (for the 2014/15 tax year).

Or those who:

  • are between 16 and 21, or state pension age and 74;
  • work or ordinarily work in the UK; and
  • earn above £10,000 (for the 2014/15 tax year).

You must enrol employees who fit these requirements if they ask to join your auto enrolment pension scheme. These are known as ‘non-eligible jobholders’.

Certain other staff (‘entitled workers’) can also ask to join a pension scheme, and, if they ask, you must put them in the scheme, but you don’t have to pay an employer contribution.

Which pension scheme?

Only certain pension schemes are suitable for auto enrolment.
If you have an existing defined contribution pension scheme, you may be able to use it, if it satisfies the auto enrolment criteria set out by the Pension’s Regulator.

There are 3 sets of requirements that a pension scheme must meet:

  • minimum requirements
  • automatic enrolment criteria
  • qualifying criteria.

Minimum requirements

These vary according to pension type. Minimum requirements for defined contribution occupational pension schemes are based on contribution rates.

Automatic enrolment criteria

In addition to meeting minimum requirements and qualifying criteria, schemes must not:

  • prevent you from making arrangements to automatically enrol, opt in or re-enrol staff; or
  • require staff to express a choice or to provide information to remain in the pension scheme.

There are additional criteria concerning consultancy charges for money purchase schemes. 
You can use a non-UK scheme based within the European Economic Area but it is important to seek professional advice, as there are additional requirements for these schemes.

Qualifying criteria

Schemes must:

  • be an occupational or personal pension scheme;
  • be tax registered; and
  • meet minimum requirements.

Enrol your staff

When you have chosen a pension scheme and assessed who is eligible, you will need to give your pension provider information about these eligible employees, on or before your staging date. This includes basic personal information, national insurance number and auto enrolment date. You will also need to give enrolment information to eligible employees – there are 27 (!) standard template letters which you can use for this process.

You must, as an employer, keep records of this process to demonstrate that you are complying with your auto enrolment duties, as the Pensions Regulator could ask to view them at any time. You’re legally responsible for ensuring records are kept, even if you outsource your pension administration to a third party.

Level of contributions

Under the rules of auto-employment, employers are required to make a minimum contribution, usually a percentage of the employee’s qualifying earnings (earnings between £5,772 and £41,865 for the 2014/15 tax year).

Register with the Pensions Regulator

Within 5 months of your staging date, you must register your scheme online with the Pensions Regulator. You will need to provide details of your company as an employer, of the pension scheme, and of the number of people enrolled.

Communicate with employees

All employees must be formally informed (either by letter or email) about how they will be affected by auto enrolment. This includes:

  • when enrolment starts
  • the pension operator
  • the type of pension
  • the level of contributions from employer and employee
  • how to opt out.

You will also need to provide this written information to new employees who start after your staging date and to employees as and when they become eligible for auto enrolment. 

In or out?

Employees can choose to opt out of your pension scheme at any time after they have been enrolled. Any staff who opt out within 1 month of enrolment will need to be refunded their contributions. Staff who opt out after 1 month will keep their pension, with whatever has already been contributed, but no longer pay in to it.

Usually, employees who want to opt out complete a form from the pension scheme provider and give it to you.

Every 3 years, you will have to automatically re-enrol any employees who have previously opted out (assuming they still qualify for auto enrolment).

Changes in employee status

You will need to put in place a process to monitor when employees move categories, as they may become eligible for auto enrolment. This is particularly important when:

  • employees reach the age of 22
  • employees who earn less than £5,772 or less than £10,000 change salary.

Getting auto enrolment right is vital, and there are penalties if you do not meet your obligations. Seeking expert advice can help, so please contact us to discuss auto enrolment and your specific business needs.