It’s the employer’s job to get their staff to save. This is the simple message of this guide. Unfortunately, the devil’s in the detail and this guide is quite technical.
re being Auto-enrolment is not just about complying with regulations, it’s about making sure your staff have better retirements.
Although these obligations are onerous, they shouldn’t stop employers promoting pension saving as positive!
In our opinion, as all employers are in the same boat, you’re best off making the best of it, so keep smiling and prepare early, that way you’ll control the process and stay happy!
So what are “Your employer duties”?
From the first day someone becomes eligible for auto-enrolment, you the employer need to be ready to meet a number of administrative and disclosure requirements and follow a strict timetable.
Whether it’s enrolling, re-enrolling, opting in or out of pension saving: – the administrative burden of the auto-enrolment regime falls on HR. managers and administrators.
Every employer has an auto-enrolment staging date when it needs to auto-enrol all workers who earn over £9,440 and who are aged 22 to State pension age.
Employers have to be auto-enrolled into a qualifying scheme. If you have an existing workplace pension then you need to check if it qualifies for auto-enrolment. You can do this using the Pension PlayPen “let’s rate our pension” tool. If you don’t have a pension or want to establish a new scheme for your staff, you can use the Pension PlayPen’s “Choose a Pension” (CAP) service. Both services can be found on www.pensionplaypen.com .
This is when the bulk of the heavy lifting is required. After that, auto-enrolment duties are triggered by one of these events:
- – you have a new joiner who meets the age and earnings requirements;
- – you have an existing worker whose earns more than £9,440 when they get to 22;
- – you have an existing worker, aged 22 or over, who gets a pay rise which means earnings in a particular period exceed £9,440;
- – you have an existing worker aged under 22 or over State pension age, who receives qualifying earnings (that is, pay in the band £5,668 to £41,450), who wants to opt-in to pension saving.
And what do you have to do next?
Work out which workers are eligible for auto-enrolment: eligibility is based on two criteria: age (22 to State pension age) and earnings over a trigger level of £9,440.
From this group, you can exclude workers who are already members of a scheme which meets the quality standards. For the workers that remain, the obligations apply from the date when you first have to auto-enrol workers. They’ll also apply for new eligible workers who take up employment or meet the criteria after the staging date.
You have three key duties to these people
Provide information: you’ve got to give information to each worker earning over £9,440 about auto-enrolment and their right to opt in or out. You’ve got to give it within a month of their auto-enrolment date. The trustees or providers of the workplace pension also need to give details to each worker who is to be enrolled – within one month of their auto-enrolment date. You’ll need the individual’s consent to pass their information to the scheme if you want to do this before the auto-enrolment date.
Arrange deductions from pay: you have to make payments on behalf of your members from the auto-enrolment date, whether they are an active member at that point or not. For weekly-paid employees, you may have deducted several pension contributions before the deadline for the member to opt out of pension saving has passed. Contributions are based on qualifying earnings – this is defined as gross earnings including commission, bonuses and overtime and so on, within a band currently set at £5,668 to £41,450 per year. Many employers, however, will arrange to meet the auto-enrolment quality standards using an alternative test based on pay from ‘pound one’.
Deal with opt-outs: workers can’t opt out before they’ve been auto-enrolled, and can only ask for an opt-out form from the scheme (employers can’t supply it to the worker with the other information, unless the scheme trustees have delegated the scheme administration function to the employer). If a worker opts out within the one-month period, you must tell the scheme, stop payroll deductions and arrange for the worker’s contributions to be refunded.
Contributions won’t have to be passed on to the scheme until after the opt-out period has ended and you know whether or not the worker wants to stay in the scheme.
If the opt-out form isn’t completed properly, you need to tell your employee what the problem is and extend the opt-out period for another two weeks so they can get it sorted. Workers who end their membership after the one-month opt-out period will be dealt with by the scheme under normal early leaver rules, but you will still have to keep track of them for re-enrolment at a later date.
On top of that, you will have to:
- – Provide information to workers who don’t qualify for auto-enrolment on age grounds – (those aged 16 to 22 or from State pension age to 75) – about their right to opt in to the same pension arrangements and benefit from employer contributions. Other workers, who are paid £5,668 or less, also need to be told about their right to join a workplace pension (but they don’t automatically qualify for an employer contribution).
- – Provide information to workers who are already members of a pension arrangement meeting the quality standards, within one month of the auto-enrolment duties applying to the employer. Workers in a waiting period for membership will need to be given information within one month of the date on which they would otherwise have been enrolled.
- – Re-enrol employees who opt out or later withdraw from scheme membership, at broadly three-yearly intervals from the original auto-enrolment date (unless they opted out within 12 months before the re-enrolment date). There is scope to move the re-enrolment date up to three months either side of the date which would otherwise apply, so as to align with the business or payroll cycle.
- – Make sure that employment protection safeguards are maintained both in any recruitment process and during the employment relationship as a whole. These safeguards remain in force, regardless of when the employer’s staging date occurs.
- – Perform ongoing checks for workers who become eligible (because they reach age 22 or have a pay rise), including workers who qualify ‘accidentally’ (perhaps because extra overtime results in higher pay in one particular pay period). Your systems must be able to flag up any individuals in these categories in time for you to operate the relevant auto-enrolment processes.
- – Ensure that opt-in, opt-out and joining notices are processed promptly.
- – Keep detailed records – including opt-out and opt-in notices, enrolment and contribution information. Most records will have to be kept for six years, though opt-out notices need only be kept for four years.
One to watch You need to keep your eye on one particular group of members: people who have enhanced or fixed protection on their pension benefits , will lose that protection if further contributions are paid or if the member continues to build benefits in a defined benefit scheme.
No exceptions are to be made for them in the auto-enrolment legislation, so it’s crucial that they opt out of auto-enrolment within the one-month period allowed, so that they are treated as never having been enrolled.
You can’t advise members to opt out (this could constitute financial advice, and could also breach the ban on inducements), but the Government has said that providing these employees with factual information about the tax implications of auto-enrolment should be ok.
You also need to know that if a worker with enhanced or fixed protection is enrolled outside the strict terms of the auto-enrolment regime, no opt-out period applies so they could lose that protection unless you have an appropriate scheme opt-out rule in place.
Preparation is key
With a list of new responsibilities like this – and potential penalties for non-compliance – you will need to develop detailed administrative processes to make sure you have the right resources in place to meet all the requirements by the relevant deadlines.
That will mean planning ahead for changes to administration and payroll systems and working with scheme trustees and managers, and their administrators, to ensure you can make the transition smoothly, and get the details right.
You’ll also need to refresh your employment contracts.
Even contracts which are kept under regular review may have become a little outdated as a result of the auto-enrolment regulations. This is a good time to plan for forthcoming changes, especially with these new statutory duties to take into account.
Which provisions in your contracts might need a clean-up? Key issues to consider include the following:
Legal updates/compliance: Are your contracts up-to-date and legally compliant? In particular, you may need to make changes to your contractual pension provisions as a result of auto-enrolment. Check to ensure your contracts contain all the information required
Flexibility for the future: Do your contracts provide your company with the rights and the flexibility you need to allow for future changes, such as the Government’s flexible working proposals, the expansion of the law on whistleblowing, and various changes to pensions and benefits? As the law changes, so should your contracts: regular reviews will ensure legal compliance with auto-enrolment. In the palaver of preparing to meet auto-enrolment staging dates, some large employers are leaving contractual amendments to the last minute. Your new hire contracts will need to be amended to reflect the new auto-enrolment regime.
Standard employment contracts often make a generic statement about eligibility to join a pension scheme. For example: “The Company operates a stakeholder scheme, which you are eligible to join. Full details are available from the HR. department”.
Post auto-enrolment, a generic statement such as the above example will no longer be enough. Eligible jobholders will, of course, have to be automatically enrolled into a pension scheme, although they’ll have the opportunity to opt out. Existing employment contracts will have to reflect the new statutory requirements.
And new employee contracts will need to be changed to reflect the new auto-enrolment regime
As an employer, you may require more extensive contractual changes in certain circumstances. For example, if you intend to operate auto-enrolment in conjunction with a salary sacrifice scheme, you will require very specific wording in the contracts of new hires to enable you to do this.
You may also need consent to vary your existing employees’ contracts. You should get specialist advice if you are intending to operate auto-enrolment in conjunction with a salary sacrifice scheme.
Ten things HR. managers need to do before their auto-enrolment date!
- Make sure your auto-enrolment workplace pension qualifies as an auto-enrolment scheme
- Know your workforce
- Know which staff you have to talk to and when!
- Know who to pay contributions to and when!
- Make sure your employment contracts are updated
- Look out for staff who have big pension rights or pots
- Make a decision on salary sacrifice
- Check that payroll can manage and if they can’t look at other options
- Prepare early
- Keep smiling!