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Pensions Auto-Enrolment

Activity

  1. Identify staging date and project team
  2. Create a timetable of activity
  3. Choose pension provider and/or scheme
  4. Configure your payroll system
  5. Communicate with any umbrella business suppliers and your clients and alter your terms of business

Staging Date

  1. Identify the “workers” within your workforce
  2. Inform your workers and employees and prepare other necessary documentation
  3. Assess your workers for those who qualify
  4. Auto-enrol all eligible job-holders or postpone Auto-Enrolment
  5. Enrol non-eligible jobholders opting in and entitled workers
  6. Communicate with your workers and employees
  7. Deduct and pay contributions into the scheme
  8. Inform the pension provider
  9. Process any Opt-out Notices
  10. Register with the Pensions Regulator
  11. Re-enrolment obligations

1. Identify staging date and project team

You will be given a staging date based on the number of employees in your largest PAYE scheme.

Staging will be rolled out between October 2012 and February 2018:

Employer size (by PAYE scheme)

Auto-enrolment from

To

Over 250

1st October 2012

1st February 2014

50-249

1st April 2014

1st April 2015

2-49

1st June 2015

1st April 2017

New businesses with PAYE scheme after 1st April 2012

1st May 2017

1st February 2018


2. Create a timetable of activity

Working back from the staging date, create a timetable of the activities necessary to set up a scheme. Identify other business priorities along this timeline which may impact on your resources so that the business continues to operate efficiently throughout the process.

3. Choose a pension provider and/or scheme

If you have an existing scheme you will need advice on whether it is a qualifying scheme.

To be a qualifying scheme, a scheme need only meet the qualifying criteria. As part of the qualifying criteria, the pension scheme must meet certain minimum requirements, which differ according to the type of pension scheme e.g. there are different criteria for defined contribution, defined benefit and ‘hybrid’ schemes.

An employer without an existing pension scheme, who is putting a pension scheme in place for the first time to fulfil their enrolment duties, will need to put an automatic enrolment scheme in place with effect from the date the duties first apply.

Detailed guidance on the qualifying criteria is available on the website of The Pensions Regulator but one scheme that does meet the qualifying criteria is NEST, the National Employment Savings Trust, which is a pension scheme with the following characteristics: It has a public service obligation, meaning it must accept all employers who apply to join. It has been established by Government to ensure employers, including those that employ low to medium earners, can access pension saving and comply with their automatic enrolment duties.

Whether it is a new or existing pension scheme, an employer must be satisfied it meets the criteria to be an automatic enrolment scheme or to be a qualifying scheme before they can use it.

4. Configure your payroll system

Payroll providers are having to configure their systems for all employers. You should contact your provider to ask what stage they are at in terms of configuration and testing or experience of operating auto-enrolment. You will also need to identify what additional charges may be incurred in order to be set up.

One of the functions your payroll software must do is alert you to when a worker becomes an eligible jobholder or non-eligible jobholder or an entitled worker (see paragraph 8) by reaching the threshold for age and/or earnings qualification. You will also need to set it up for the relevant pay reference period and calculate what sums amount to “qualifying earnings” (paragraph 7) on which contributions are calculated (paragraph 12). The system will need to interface with your chosen pension provider and enable you to notify the scheme provider when a worker is enrolled (paragraphs 9 & 10) and forward employer and employee contributions. You will also need to have a process for dealing with opt-out notices (paragraph 14) and the system must also cope with the re-enrolment process every 3 years (paragraph 16).

5. Communicate with any umbrella business suppliers and your clients and alter your terms of business

Depending on your sector and business model you may find umbrella business suppliers have an earlier staging date than you and that this may impact on you and your clients in terms of costs they pass on. If they have not already discussed this with you, write to them asking when their staging date is; what preparations they are making; and the likelihood of any increase in costs.

When you have identified what costs will be incurred either from umbrella suppliers or your own administration costs it is wise to inform your clients as soon as possible that you are preparing for auto-enrolment and will keep them informed. Whilst they are not liable for employer’s pension contributions this will be part of your overheads so may necessitate an increase in your charges.

6. Identify the “workers” within your workforce

Before your staging date you will need to identify those amongst the workforce who fall into the category of “workers”.

A ‘worker’ is an individual who has entered into or works under either:

6.1 a contract of employment, or

6.2 any other contract by which the individual undertakes to do work or perform services personally for another party to the contract, (i.e. they cannot send a substitute or sub-contract the work) and is not undertaking the work as part of their own business.

The duties therefore apply to your own employees who are engaged under a contract of employment, and also workers engaged under contracts for services where some or all of the following apply:

  • You rely on the individual’s expertise and expect them to perform the work personally i.e. not sub-contract or substitute another worker.
  • There is an element of subordination between you, or the client, and the individual doing the work, for example the individual reports to your managers or those of the client in respect of the specific operation or project on which they are contracted to work.
  • The contractual provisions do not state the contract is a contract for services between you, and the individual’s own business, as a client or customer of that business.
  • The contract provides for employee benefits such as holiday pay, sick pay, notice, expenses etc.
  • There is a mutual obligation set down in the contract to provide or do the work.
  • The individual does not incur any financial risk in carrying out the work.
  • You, or the client, provides tools, equipment and other requirements to the individual to carry out the work.

This list is not exhaustive. However in cases where a worker is paid via PAYE it is likely that they will fall within the definition of a ‘worker’.

What about limited company contractors?

Those individuals supplying their services through a limited company may be eligible but it will be the responsibility of the company they are supplied through to comply with the employer duties. If the company is a one-person company then they will not have to comply with these rules. But if they employ a second person and the director and that other are employed under contracts of employment they will both be workers and the company will have to exercise their duties over them. The Pensions Regulator will be keen for as many people as possible to be enrolled under these rules so if your contracts with your limited company contractors are not clearly with the company and mention a named individual as the contractor then your duties may extend to them. It is probably worth writing to all limited company suppliers to inform them you do not regard the workers they supply as falling within your responsibility to comply with the employer’s duties.

7. Inform your workers and employees and vary their terms and conditions and prepare other necessary documentation

In addition to your statutory notification obligations you may wish to inform your employees and workers about the scheme in advance:

  • how they can join
  • how much it will cost them
  • how much you, the employer, will pay towards it and
  • what benefits the scheme provides.

You should be careful not to present information in a way to persuade or incite employees to take a particular course of action, or give advice on the merits of taking a particular action.

For further information you can refer them to the information available on the Government’s public information website:www.direct.gov.uk/workplacepension; The Pensions Advisory Service www.pensionsadvisoryservice.org.uk; or the Money Advice Service set up by the Government www.moneyadviceservice.org.uk

You will probably need to amend your contracts of employment with your employees and your PAYE worker’s terms of engagement to refer to auto-enrolment and your right to deduct payments of contributions. So you will need to have a period of consultation to explain this and obtain their consent.

You will need to comply with statutory obligations to provide information to workers (paragraph 11) by certain prescribed dates. Further information and templates are available on the website of the Pensions Regulator but these will need to be drafted in advance.

8. Assess your workers for those who qualify

After your staging date you must assess all those workers and/or employees to identify which fall into the following categories: eligible job-holders; non-eligible job-holders; and entitled workers.

The assessment process involves 3 parts:

  • Assessing the worker’s age
  • Assessing whether the worker works (ordinarily) in the UK
  • Assessing whether there are qualifying earnings in the relevant pay period

Who is an eligible jobholder?

  • A worker aged between 22 and state pension age with annual earnings over £10,000 (Figures are for 2014)

You must automatically enrol an eligible jobholder into a qualifying pension scheme and make a contribution. You must give the jobholder information telling them of the automatic opt in and what it means for them. You must also inform them of their right to opt out and to opt back in; and if they have opted out to re-enrol them every 3 years if still employed.

Who is a non-eligible jobholder?

  • A worker aged either between 16 and 21 or between state pension age and 74 with annual earnings over £10,000; Or
  • A worker aged between 16 and 74 with annual earnings between £5668 (lower earnings threshold) and £10,000

You are not required to automatically enrol a non-eligible jobholder into a qualifying pension scheme, but must do so and make a contribution if the non-eligible jobholder chooses to opt in. You must give the jobholder information telling them of the right to opt in and what it means for them within one month of the date on which they become a non-eligible jobholder i.e. from your staging date, or their first day of employment.

Who is an entitled worker?

  • A worker with annual earnings below £5668 (lower earnings threshold)

You must arrange access to a pension scheme if the entitled worker asks you to do so. This does not have to be a qualifying scheme. You are not required to make contributions. You must give the worker information telling them of the right to join a pension scheme and what it means for them within one month of the date on which they become an entitled worker i.e. from your staging date, or their first day of employment.

How do I identify ‘qualifying earnings’?

For workers whose earnings fluctuate you will need to follow 3 steps:

  • Identify the relevant pay reference period – i.e. the period of time by reference to which they are paid e.g. daily, weekly, monthly;
  • Identify what is payable in that period – gross basic pay includes wages, bonus, commission, SSP, SMP, overtime. (NB. You may decide to make the assessment on NMW as basic pay or actual earnings but you will need to take advice on this point)
  • Compare this sum with the lower earnings limit and qualifying trigger for each category.

9. Auto-enrol all eligible job-holders or postpone Auto-Enrolment

Within one month from the auto enrolment date an employer must achieve active membership of a qualifying scheme for all eligible jobholders. The auto-enrolment date is either:

  • A jobholders start date
  • A jobholders 22nd birthday
  • The start of the pay reference period in which the jobholder’s earnings go over the earnings threshold.

However all employers can operate a three-month postponement window when a worker becomes an eligible jobholder. This postponement can be repeated multiple times as long as the date of entitlement isn’t the day after the three month period ends. Postponement can be useful to avoid auto-enrolling casual workers; or those with a spike in earnings; or to avoid part-period pay deductions by moving the start date to the beginning of a pay period.

10. Enrol any non-eligible jobholders who notify you of a wish to ‘opt-in’ and join any entitled workers to a pension scheme

Jobholders may opt-in to a qualifying scheme while workers may apply to join a pension scheme. The difference is as follows:

  • Opting in: A jobholder can require the employer to arrange for them to become an active member of an automatic enrolment scheme, with effect from the enrolment date. They do this by giving the employer an ‘opt-in notice’. This will apply to non-eligible jobholders; an eligible jobholder who has been automatically enrolled but subsequently opted out or ceased membership; and an eligible jobholder who was not automatically enrolled because they were a member of a qualifying scheme on their automatic enrolment date, but subsequently ceased membership of that scheme.
  • Joining: An entitled worker can require the employer to arrange for them to become an active member of a pension scheme. They do this by giving the employer a ‘joining notice’.

Once you have established whether the notice was given by a jobholder or an entitled worker, you must next check the notice is valid. The notice given by the jobholder or entitled worker must be in writing and does not have to be a formal document (it can be a letter or an email) but must be signed by the worker submitting it or, if it was sent by email, it must include a statement from the worker confirming they personally submitted the notice.

11. Communicate with your workers and employees

Before the end of what is known as the ‘joining window’ (the one-month period from the eligible jobholder’s automatic enrolment date), you must:

  • give enrolment information to the eligible jobholder
  • make arrangements to achieve active membership for the eligible jobholder, effective from their automatic enrolment date.

If you decide to postpone auto enrolment you must send a postponement notice to the workers affected. The postponement notice tells a worker;

  • automatic enrolment has been postponed;
  • the deferral date, and
  • on the deferral date, if they meet the criteria to be an eligible jobholder, they will be automatically enrolled.

The postponement notice can also be used to include some of the other information requirements an employer is required to fulfil in respect of a worker, such as:

  • the requirement to tell a non-eligible jobholder about their right to opt in to an automatic enrolment scheme
  • the requirement to tell an entitled worker about their right to join a pension scheme
  • the requirement to tell a jobholder who is an active member of a qualifying scheme about the scheme.

12. Start deducting contributions from enrolled worker’s pay and pay employee’s and employer’s contributions into the pension scheme

The minimum amount of contributions is prescribed:

October 2012 – October 2017

Employer 1%

Employee 1%

October 2017 – October 2018

Employer 2%

Employee 3%

From October 2018

Employer 3%

Employee 5%


13. Inform the pension provider

Before the end of what is known as the ‘joining window’ (the one-month period from the eligible jobholder’s automatic enrolment date), you must give information to the pension scheme about the eligible jobholder and make arrangements to achieve active membership for the eligible jobholder, effective from their automatic enrolment date.

14. Process any Opt-out Notices

A jobholder who has become an active member of a scheme may opt out of the scheme by sending his employer an Opt-out Notice within one month of the date the jobholder is provided with written information about their enrolment.

On receipt you must check it is a valid notice and if it is:

  • stop deducting contributions
  • inform the pension provider
  • refund any contributions already paid
  • keep records and copies of the Notice for 4 years

15. Register with The Pensions Regulator (TPR)

You are required to register with TPR within 4 months of your staging date via secure online process through the Government Gateway.

16. Re-enrolment obligations

Every 3 years after your staging date (within 6 months of the anniversary) you have an obligation to re-enrol eligible jobholders in a qualifying scheme, unless the jobholder has opted out within the past 12 months.

Further Information

Further Information, detailed guidance and template documents can be found on the websites of The Pensions Regulator and the Department for Work and Pensions and GOV.uk