Read this if you are an employer. A major change in pensions legislation is about to affect you, and you can’t avoid it.

This is known as auto enrolment.

All employers are required by law to set up a new pension scheme for your staff and contribute to this scheme (unless you have an existing pension scheme which meets the new rules).

Key points

  • What is auto enrolment?
  • Your staging date
  • Employer responsibilities
  • Assessing eligibility
  • Minimum contributions
  • Opting out
  • Choosing a pension scheme
  • Keeping records
  • How to comply with auto enrolment rules
  • How to get auto enrolment off your desk – guide

What is auto enrolment?

Auto enrolment affects all businesses in the UK with at least 1 eligible employee. Under auto enrolment all employers are required to enrol eligible employees in a workplace pension and pay contributions in to this scheme. Employers and employees are required to make contributions to this scheme unless the employee voluntarily opts out of the pension scheme. The new legislation will mean a massive amount of work for you if you do not have a pension scheme which complies with the new rules.

Your auto enrolment staging date

You are required to comply with the auto enrolment rules by your staging date – which is determined by the size of your business. This is the date when your legal duties come into force. You can find out your staging date here. Larger businesses have already passed their staging dates, and the rules will be applied to smaller businesses gradually. You cannot avoid this date, and you need to have your pension scheme in place early enough to comply with the auto enrolment rules. Your duties apply from the staging date, and you risk fines by the Pensions Regulator if you miss this deadline.

What are your responsibilities as an employer?

There are a variety of quite onerous responsibilities for employers under auto enrolment. Some of these include:

  • Nominating a point of contact with the Pensions Regulator
  • Assessing eligibility of your workforce
  • Choosing and setting up your new workplace pension scheme
  • Keeping adequate records
  • Communicating to your employees
  • Processing status changes, joiners and leavers to the scheme
  • Registering the pension scheme with the Pensions Regulator
  • You are not allowed to encourage your staff to opt out of the arrangements

Start planning early

Fiona Cowie, HR and Reward Consultant with Essential HR Solutions says you should plan early: “If you are due to reach your Auto-Enrolment Staging Date in the next year, you must take positive steps now to get to grips with the requirements and to work out what actions you need to take to ensure compliance with the law.  The obligations are broadly 10% pension and 90% administration and for most smaller businesses. This will have a huge impact on business processes, administration and cost.  Ensure you can access the expertise you need, deal with the volume of administration and mitigate the extra cost by taking a proactive view of Auto-Enrolment and get started now.”

Assessing eligibility of your workforce under auto enrolment

There are 4 categories of worker, which you need to be aware of:

  • Eligible jobholder These workers must be enrolled into the new scheme and receive employer contributions. This applies to workers aged between 22 and the State retirement age (which is different for everyone), who earn at least £10,000 per year at current rates.
  • Non-eligible jobholder These workers can opt in to the pension scheme and receive employer contributions. This applies to all workers aged 16-21 or over the State pension age until age 74, as well as those who earn at between £5,772 and £10,000 per year at current rates.
  • Entitled worker Workers of any age who earn less than £5,772 per year at current rates have the right to opt in to the pension scheme. These workers do not have the right to employer contributions unless this is part of their contract of employment.
  • Other Self-employed workers, directors without contracts, and overseas workers do not attract automatic rights to participate in the pension scheme.

This assessment will need to be made on an ongoing basis as people join the company, reach certain ages or change their earnings.

Minimum contributions under auto enrolment

The minimum contributions for each pension scheme depends on the definition of pensionable earnings you plan on using for auto enrolment. The default arrangement is to use ‘qualifying earnings’, which includes all salary, bonus, overtime, commission and certain State benefits such as Statutory Sick Pay or Maternity Pay. You can choose alternative definitions of pensionable earnings, which would change the figures below. If you use the qualifying earnings method your contributions will be phased in as follows:

  • From your staging date until April 2018 Employers must contribute 1% of qualifying earnings; the total must be at least 2%.
  • From April 2018 until April 2019 Employers must contribute 2% of qualifying earnings; the total must be at least 5%.
  • From April 2019 onwards Employers must contribute 3% of qualifying earnings; the total must be at least 8%.


Communication with employees

Planning communication of the arrangements to your employees is vital says Quentin Colborn of QC People Management: “Start planning as early as possible and as well as planning auto-enrolment operationally and make sure that the communication to the workforce is well planned. Although there is publicity by the Government, it is unlikely to register with employees until they feel it affects them personally. So make sure employees are fully aware of when auto enrolment will start and what it means to them.”

Opting out of the pension scheme

Individual members are allowed to opt out of the pension scheme. Employers must not actively encourage opting out and risk fines if they are deemed to exert undue influence in this area. A member has 30 days from the date they are auto enrolled in the pension scheme to opt out and receive a refund of contributions. If a member opts out of the pension scheme they must be auto enrolled again by the employer after 3 years; the staff member can opt out again if they wish.

Choosing a pension scheme under auto enrolment

It is your responsibility to choose your pension scheme. The  new pension scheme should fit minimum standards such as:

  • Not requiring members’ consent to join
  • They can join on the first date of their employment
  • The scheme can accept minimum contributions

You should also assess that the scheme is simple, value for money and has appropriate investment options. You are required to register your pension scheme with the Pensions Regulator to prove that you have complied with auto enrolment legislation.

Setting up suitable processes for auto enrolment

This is one of the key areas of work for all employers. You need to be able to keep adequate records to show that you have properly assessed workers at every payroll date. dealing with status changes as they come up. This includes:

  • Joiners
  • Leavers
  • Birthdays
  • Retirement
  • Maternity
  • Salary changes
  • Sickness
  • Opt-ins
  • Opt-outs

You should also be prepared to report to the Pensions Regulator at any stage on all of these issues. As you can imagine, this will involve a significant amount of work for your payroll staff. You may find a solution through your payroll provider, or pension scheme.

How to comply with auto enrolment rules?

As you can see, there is a significant amount of work to be done to comply with the auto enrolment rules. We have a low-cost guide to auto enrolment available help you to complete your project in the most cost-efficient way possible. The guide costs just £97 – for more information please contact us using one of the following methods https://www.woodruff-fp.co.uk/contact-us/

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