What is auto-enrolment?
The auto-enrolment legislation means that all businesses who employ a ‘worker’ must find out how that worker is affected. Some workers will need to be automatically enrolled into a qualifying pension scheme.
Who is eligible for auto-enrolment?
Workers who earn more than the auto enrolment threshold, or trigger, of more than £10,000 per annnum (or the weekly/monthly equivalents thereof) and who are aged at least 22 but under State Pension Age will need to be automatically enrolled. These workers are called Eligible Jobholders.
Who else is eligible to join the pension scheme?
There is another category of worker, called a Non-Eligible Jobholder, who won’t be auto-enrolled but who can decided to opt-in to the scheme if they want to. These workers are aged at least 16 but under 75 and earn over £5,876 per annum (2016/17).
When does auto-enrolment start?
Your pension scheme must be in place by your Staging Date. However, you are able to delay the auto-enrolment of your employees for up to three months after your staging date. This is called postponement.
Do I need to set up a workplace pension scheme?
If you have one employee or more, then you will need to check whether any of your employees are eligible for auto-enrolment or, if they are not eligible for auto-enrolment, whether they are legally entitled to opt into a scheme. An eligible employee is aged between 22 and State Pension Age, earning over £10,000 a year (or £833 a month/£192 a week, because earnings are measured against the auto-enrolment threshold each pay period). If you have an eligible employee then you must set up a workplace pension.
If you have an employee who is aged between 16 and 22, or State Pension Age and 75, they are called a non-eligible jobholder. Or, if an employee earns between £5,824 and £10,000 a year (or the monthly/weekly equivalents), they also fall into the non-eligible jobholder category. Non-eligible jobholders won’t be automatically enrolled but have a legal right to opt-in to a workplace pension, so you’ll need to find out whether they want to opt in and, if they do, you’ll need to set up a scheme.
I have no eligible jobholders. However, I do have non-eligible jobholders. Do I need to set up a scheme?
Maybe… If your Non-Eligible Jobholders decide that they want to opt-in to a company pension scheme, you will have just six weeks from the date of the opt-in request to set up a new pension scheme, which may be difficult during the next couple of years due to the large volumes of companies staging in the next couple of years. If you suspect that your non-eligible jobholders may wish to opt-in to a pension scheme, we would strongly recommend that you set up a scheme at your staging date in readiness for opt-in requests.
How do I choose a workplace pension scheme?
Pension scheme choice is absolutely critical. It’s vital that you choose a well-established workplace pension scheme that provides good value for money for your employees, is compliant, approved or regulated, with sufficient asset backing to ensure it will stay the distance. Choosing the right scheme now will provide your employees with a more comfortable retirement. You should understand the type of scheme you’re setting up – either a commercial provider or a Master Trust – what’s the difference? If you have no pensions knowledge, the best way to ensure good employee outcomes is to get some advice from a qualified pensions professional about pension scheme choice.
How much will my business have to pay?
The statutory minimum contributions are based upon a percentage of a worker’s banded qualifying earnings, in a similar way to National Insurance contributions. Banded qualifying earnings are all PAYE earnings between £5,876 and £45,000 per annum (2017/18), or the weekly/monthly equivalents thereof.
Where does payroll fit in?
Choosing and setting up your scheme is just the beginning – employee assessments, categorisations, contribution deductions and data file uploads to the pension provider need to be carried out by your payroll software. Your payroll software should also generate your statutory letters (postponement and enrolment letters). It’s likely that you’ll need to upgrade your existing payroll software to incorporate an auto-enrolment module which will carry out these functions for you. If you run a payroll in house, ensure that you read or watch your software provider’s training programmes on auto-enrolment and carry out their instructions to the letter. Payroll software will certainly carry out these tasks for you, but the most important aspect is the pension scheme set up – get the scheme set up wrong and this can lead to some very time consuming problems down the line when contributions may need correcting. The Auto-Enrolment Bureau can carry out this payroll function for you if you decide that outsourcing your payroll may be the best option.
I’ve left things to the last minute, will I get fined?
Auto-enrolment fines are being issued by the Pensions Regulator. If you’ve left it until the last minute and are now struggling to get your scheme set-up, we would advise you to give the Regulator a call to let them know. They don’t want to issue auto-enrolment fines unless they have to, and keeping them informed of progress will certainly help. Our AE FastTrack service is very quick and easy, and is a cost-effective solution for small businesses who have left things a little late!
I’ve missed my staging date!
If your staging date was within the last six weeks, you are able to implement ‘postponement’. Postponement means that you can delay the enrolment of your employees into the pension scheme for a maximum of three months, but you must notify your employees that their enrolment is being postponed within six weeks of your staging date. You must still set your scheme up straight away. If your staging date was more than 6 weeks ago, then you can’t apply postponement and your employees’ enrolment date will revert back to your staging date. The employer will be legally required to pay backdated employer contributions from your staging date until the date that your scheme is up and running, and – here’s the sting – the employer will also need to pay all of the backdated employee contributions too. The employees are not expected to pay their own backdated contributions. The Auto-Enrolment Bureau can carry out backdated contribution calculations on your behalf and set up your scheme within 24 hours if necessary, to keep backdated contributions to a minimum and minimise any fines from The Pensions Regulator.
Can I delay my staging date?
You can’t put off your staging date (although you can bring it forward and comply earlier), this is set in stone and you must have your scheme set up in advance of your staging date. The Pensions Regulator recommends that you set up your scheme at least 6 months in advance of your staging date. However, you can postpone enrolment of employees in certain circumstances, and the Auto-Enrolment Bureau can provide you with all the advice you need around postponement, as well as providing your new and existing staff with a Pension and Postponement Policy and an Employee Announcement Letter which explains how postponement will affect them.
How to opt out of auto-enrolment….
Your workers will have a window of four weeks from the later of a) the receipt of their pension provider’s information pack or b) the date the workers became active members of the scheme. Workers will receive instructions about opting out from the pension provider. It is important that your company does not issue opt out forms or handle the opt out requests.
I’m a sole director, how am I affected by the auto-enrolment rules?
Sole directors of limited companies are excluded from the automatic enrolment legislation. However, if you’ve received a reminder letter from the Pensions Regulator then you will need to email them to confirm your sole director status.
I’m one of two or more directors, with employees. How am I affected?
If you are a director with a contract of employment with your company, and there are more than two directors in your company, then you are classed as a worker and will be subject to the auto-enrolment legislation. If you and your fellow directors do not have contracts of employment then you are not classed as workers and are unaffected, but any employees you have will still need to be assessed and, if necessary, enrolled into your chosen pension scheme.
I am a director with fixed or enhanced pension protection. Do I have to be auto-enrolled?
No, with effect from April 2015, workers with protected pension benefits do not have to be auto-enrolled. If a worker with protected pension benefits is enrolled and does not opt out during the opt-out window, they will lose their tax protected status, so it’s often safer to exclude these workers from the auto-enrolment process altogether.