Auto-enrolment is the term for the automatic enrolment of employees into workplace pension schemes. By 2018, all businesses must operate a pension scheme for qualifying employees, with employee and employer contributions.
Whilst 2018 may seem a long way off, the Centre for Economics and Business Research (CEBR) is predicting that SMEs will face set-up costs of up to £28,300 per business to meet pension auto-enrolment requirements. They also estimate that it could take businesses up to 103 working days to implement, therefore it is vital to start planning as soon as possible.
How do you go about implementing Auto-enrolment in your organisation?
The work involved in setting up an approved Auto-enrolment scheme should not be underestimated; for those employing a large workforce with dedicated staff and resources to deal with implementation it is much easier to deal with than those with a much smaller number of employees who will undoubtedly find the task a significant chore and burden.
For more information about the process an employer needs to follow in order to be compliant in meeting their Auto-enrolment duties, please visit http://www.thepensionsregulator.gov.uk
Others, including those initially thinking they will do it themselves, may find it more appropriate to seek external advice and support.
What are an employer’s duties?
Below are a summary of the key duties employers need to undertake to get ready for auto enrolment, along with a summary of the ongoing duties post the auto enrolment date. Before your staging date:
- Know your staging date – Your staging date is the date on which you need to enrol all of your eligible workers into a suitable pension scheme and start paying contributions. Given the range of tasks involved with getting ready for auto enrolment our advice is to start preparing 6-9 months ahead of your staging date. If you would like to know your staging date please complete the form at the top of this page and we will email you with details of your relevant staging date.
- Nominate a contact – You need to tell the pensions regulator who will be responsible for managing the automatic enrolment process by nominating a contact. This is the person who the regulator will send updates and information, letters and emails about the process to.
- Develop initial plans – This will involve getting your payroll and HR team involved in understanding the changes and processes involved. You can begin to log in to the regulators automatic enrolment declaration of compliance (registration) online service and start providing some of the information required such as address and PAYE information.
- Know your workforce – Your workforce will fall into one of three categories, eligible job holders; non-eligible job holders; entitled workers. It is important you assess your workforce and understand the category into which they fit.
- Check your processes and software – You’ll need to make sure your business processes and software will support auto enrolment. Many of the functions necessary for handling the specific requirements will need to be automated, such as:
- deducting and paying contributions to the scheme
- monitoring the ages and earnings of your staff
- handling requests to join the pension scheme from members of staff who haven’t been automatically enrolled.
- Review pension arrangements – This is the time when you must choose the pension scheme you will auto-enrol your staff into. You may already have a pension scheme but you will need to check that it is compliant with the auto-enrolment regulations, as this may not necessarily be the case. You’ll need to choose an automatic enrolment scheme that will provide a good outcome for your staff. You must have agreement from the pension scheme you’ve chosen that, from your staging date, it will be ready to accept all the staff you need to enrol.
- Communicate to Staff – With automatic enrolment becoming more publicised, it’s a good idea to start communicating to your staff early on, to raise general awareness about its arrival and how they’ll be affected. One of your new duties is to write to each member of staff telling them how automatic enrolment law affects them, for example, whether they’ve been automatically enrolled, or that automatic enrolment has been postponed for them. You must do this within certain time limits, usually within six weeks of them being enrolled, or within six weeks of your staging date if you’re postponing. What you must tell them is different depending on their rights and whether you’ve postponed automatic enrolment for them. You can postpone automatic enrolment for some or all of your staff for up to three months from staging. Start planning these communications before your staging date, so you know who should receive what information.
On and after your staging date
- Know who you need to enrol – At this point you will need to assess the earnings and ages of your staff to ensure you know who you will be auto enrolling. At the point of declaration you will need to account for everyone who worked for you on your staging date and how many people you auto-enrolled.
- Automatically enrol your staff – At this point you will need to have your pension scheme up and running, enrol your staff into the pension scheme and start deducting contributions from staff and paying them to the pension provider along with the employer contributions. Important note: You must not say or do anything that could be viewed as influencing any of your staff to opt out of your pension scheme. This is referred to as ‘inducement’ which is a breach of the law and could result in fines.
- Declaration of compliance – Within 5 months of your staging date you will need to make a declaration of compliance to the regulator informing them that you have complied with your employer duties. Failure to make this declaration may well result in a fine.
- Keeping records – Certain records must be kept about your staff and about the pension scheme. Some of these will be kept by the pension scheme, some must be kept by the employer. These include:
- names and addresses of staff you’ve automatically enrolled
- the contributions payable to the pension scheme and when they were paid
- any opt-in or opt-out notices you receive
- name and address of the pension scheme
- employer pension scheme reference or pension scheme registry number.
Make sure you know what these records are and where to get them from. You’ll also need to decide how you’ll store them so you can easily access them. You’ll need to be able to produce these records if we ask to see them. Keeping records is good governance and is proof that you’ve carried out your duties. These records must be kept for a specified time, which in most cases is six years.
- Ongoing responsibilities – Although it may seem as though all the work happens before your staging date, that doesn’t mean that it’s all done with when your staging date arrives. The preparations you’ve made in the run-up to your staging date will allow you to manage automatic enrolment on an ongoing basis. Just like submitting real-time PAYE, all your automatic enrolment activities will become ‘business as usual’. These include the following:
- Paying contributions
- Processing opt – outs
- Processing opt-in requests
- Monitoring ages and earnings
- Assessing new starters
- Pension scheme governance – it will be a duty of the employer to ensure the pension scheme chosen both initially and ongoing offers good value to the employees as a haven for their pension savings.
Employee status and contracts of employment
As part of the process of adopting Auto-enrolment you will need to review contracts of employment, the employee handbook and your process of employee engagement to ensure they are compliant and that they take into account the changes.
It will not only be the obvious sections that need amending but policies such as those relating to Data Protection may also need addressing.
What if employees do not wish to take part?
Employees that do not wish to enrol on or participate in a scheme can choose to opt out.
Can employers influence employees not to take part?
Employers cannot influence or prohibit entitled employees from participating in an Auto-enrolment scheme. Employers are also not allowed to offer other employee incentives in place of or as a substitute to Auto-enrolment.
What if you don’t do anything and/or don’t comply?
The obligation and requirement to comply with Auto-enrolment rests with the employer. Those employers who fail to comply or meet the regulator’s requirements will be required to rectify any non compliance. Those that fail to comply, whether unintentionally or not, will face the enforcement powers of the Pensions Regulator. Such enforcements can range from informal action and guidance, through to statutory notices to comply and ultimately financial penalties. Such penalties start with a fixed penalty fine of £400 escalating to daily fines of between £50 and £10,000 where employers have failed to comply.
While you can’t avoid auto-enrolment you can take steps to minimise its financial impact on your profitability, and these steps need to be designed into your pension arrangement.
What we can help with?
• Identifying who will be affected – and who will need to be auto-enrolled.
• Communicating with your staff – as to how they will be affected.
• Planning for your staging date – to ensure your payroll is ready for auto-enrolment.
• Selecting the appropriate pension advisor – based on your requirements/people.
• Explaining the financial impact of auto-enrolment – on your profit/cash flow.
• Advising on salary sacrifice – and how you and your staff could benefit from salary sacrifice schemes such as employee benefits.
For more information please contact us so we can arrange a meeting and discuss in greater details.