Auto-enrolment is the obligation on all employers to enrol their employees into a pension scheme automatically and to pay money towards their pension. Under the rules, employers must:
- Provide a qualifying scheme for workers
- Automatically enrol all eligible jobholders onto the scheme
- Pay employer contributions for eligible jobholders to the scheme
- Tell all eligible jobholders that:
- they have been automatically enrolled and
- they have the right to opt out if they want to do so
- Register with the Pensions Regulator and give us details of your qualifying scheme and the number of people that you have automatically enrolled.
Before you choose a pension scheme/s, you need to think carefully about what the new regulations mean for your organisation. You will need to know:
- When they apply
- Who to enrol
- How to make contributions
The workforce will need to be assessed each time you run the payroll, statutory communications must be provided to staff, opt outs need to be managed and processed, records need to be kept and auto-enrolment must be communicated to staff.
You must automatically enrol all staff who are:
- aged 22 to state pension age
- working in the UK
- earning over £9,440 a year.
Some staff who don’t meet the criteria above are able to opt into the pension scheme you’re using for automatic enrolment. You must put them in if they ask. You’ll have to pay a minimum employer contribution for all staff you put into this scheme.
The date when the law is ‘switched on’ for your business is known as your ‘staging date’. You can use a tool on the Pension Regulators website to find out your staging date. Please note, you will need to know how many people are in your PAYE scheme and your employer PAYE reference. The tool can be found at: www.thepensionsregulator.gov.uk/employers/tools/staging-date
The total contribution for an individual employee is paid by the employee, employer and HMRC in the form of tax relief. For some employers, from October 2012, it started at 3% of band earnings (band earnings currently ranging from £5,668 to £41,450) but will eventually rise to 8% from October 2018 onwards.
The new legislation incorporates non-compliance penalties of up to £10,000 for employers not meeting certain minimum standards of auto-enrolment.
If any of your staff have previously elected for enhanced or fixed protection of their pension funds, it is vitally important that they inform you that they wish to opt out of the auto-enrolment programme. Failure to do so will invalidate their protection against lifetime allowance protection which would cause an additional unwarranted tax charge. Please note that every three years they will be requested to repeat the opt out process.
Your planning should include:
1. Identifying the employees affected.
2. Reviewing your existing scheme as it may meet the requirements for auto-enrolment with a small amount of change.
3. Reviewing your salary sacrifice options. We can help you with reviewing your salary sacrifice and employee benefits.
4. Identifying the systems and process changes that you will need to make to manage auto-enrolment and determine how and when you will communicate with staff.