Pensions Auto-Enrolment Update….

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I am sure you will all by now have seen the many articles and advertisements that are now appearing in the media following the introduction of Pensions Auto-Enrolment Legislation in October 2012. You may even have attended one of the many seminars that are being held on this subject.  Most likely you have come away thinking “thank goodness - we don’t need to do anything about this for a while!”

So what is Auto-Enrolment?

Since the introduction of the Pensions Auto Enrolment legislation, as an employer, you now have a legal duty to assist your workers in the UK to save for retirement.  You must automatically enrol certain workers into a qualifying workplace pension scheme and make contributions towards it.

Many of you will already have a pension scheme set up and in the majority of cases your existing pension scheme may well be perfectly adequate.  However it is advisable that you contact your pension company to enquire whether your particular company pension scheme will comply with the Auto Enrolment Regulations as not all schemes will be suitable. Likewise many of your employees will already be members of your pension scheme and therefore, again, you will not have too much to do.   But you need to be aware that once your firm reaches its Staging Date for Auto Enrolment at that point you need to enrol every “worker” into the pension scheme.  This is a legal requirement and no longer just an optional benefit for employees.

Do all staff have to be enrolled in the company pension?

Those who are assessed as being eligible must be enrolled into the company pension – this is a legal requirement.  However once enrolled, staff can then choose to opt out of the pension scheme.  For example they may already have a personal pension plan which they prefer to maintain and do not wish to pay into a company scheme as well.  Although this will of course mean that they will miss out on the employer contributions that will be made into the company scheme on their behalf.   However you must keep careful records of those who have chosen to opt out as you are required to automatically re-enrol them into the pension scheme every 3 years

Some of our staff have already reached the current Lifetime Allowance – how does this affect them?

Alternatively, some of your people may already have reached the Lifetime Allowance in respect of their pension and if they (or their employer) continue to make contributions into their pension which take it over the Allowance limit, then they will be taxed on the excess.  For the year 2013/2014 the Lifetime Allowance is £1.5M.   Be aware that you will still need to enrol these people into the pension as this is a legal requirement under Auto Enrolment.  However those who have hit the Lifetime Allowance must notify you that they wish to opt out immediately they are enrolled.

What are your duties as an employer?

  • Understand the different categories of worker – ‘eligible jobholders’, ‘non-eligible jobholders’ and ‘entitled workers’ – and assess your own workforce to see who fits into each category.
  • Understand the duties you have in respect of each category.
  • Enrol all eligible workers into a pension scheme, without the need for any action by the worker.
  • Administer the opt-out process for workers who decide they do not want to be a member of a pension scheme.
  • Provide specified information to groups of workers within the different categories of worker.
  • Once you have enrolled a worker you will need to make employer contributions and maintain those contributions.
  • You will also be required to keep records about your workers and the pension scheme used to comply with your new duties.
  • Ensure that you do not take any action which could be construed as an attempt to encourage the staff member to opt out of the pension scheme, thereby saving you the need to make an employer contribution.  Therefore if you currently make cash payments to those who prefer to stay with their own personal pension, you may want to re-think this.

How do you assess your workers?

As the employer, you must assess each member of your workforce to establish which category of worker they fall into.  To do this you must:

  • Identify who in your workforce will be classed as a “worker” for the purposes of auto enrolment
  • Identify the workers age
  • Identify whether the worker is working, or, ordinarily works in the UK under their contract of employment, and
  • Assess the workers earnings

Throgmorton can you assist you in carrying out this assessment of your workforce to determine which category your staff fall into. We can then assist with the administration of the auto-enrolment process for each category.

Categories of workers and employers actions

Category of Worker  What the employer has to do 
Eligble jobholder - Automatically enrol
- Make ongoing employer contributions to the pension scheme
- Process any opt-out notice
- Automatically re-enrol approximately every 3 years
- Keep records of the automatic enrolment process
- If using postponement, provide a notification to the eligible jobholder 
Non-eligible Jobholder Provide information about the right to opt-in, where the employer is:
- Not using postponement; or
- Using postponement but using a tailored postponement notice for a jobholder.

If the non-eligible jobholder decides to opt-in:
- Arrange pension scheme membership
- Make ongoing employer contributions to the scheme
- Process any opt-out notice
- Keep records of the enrolment process 
Entitled worker  Provide information about the right to join, where the employer is:
- Not using postponement; or
- Using postponement but using a tailored postponement notice for an entitled worker.

If the entitled worker decides to join:
- Keep records of the joining process 

Some Frequently Asked Questions for Employers:

Q:  Is there any way around the need to comply with all the employer duties?
A: As an employer, you must comply with all of your duties. The Pensions Regulator will audit all companies to make sure they are fulfilling their duties and there are substantial fines that may be levied against companies that do not comply.

Q: Do I still have to comply with the employer responsibilities if I have an existing pension plan?
A: Yes. You still have employer duties even if you have a pension scheme that meets the minimum requirements. .

Q: What penalties will I face if I don’t comply?
A: The Pensions Regulator will check that all employers are complying with the new rules. If you are found to be in breach of any of your responsibilities, you will be issued with a notice of enforcement. The Pensions Regulator can also issue an  escalating penalty notice for failure to comply with a statutory notice. This penalty has a  prescribed daily rate of £50 to £10,000 depending on the number of staff you have.  The  Regulator can also issue a civil penalty for cases where you fail to pay contributions due.   This is a financial penalty of up to £5,000 for individuals and up to £50,000 for organisations.

Q: When would an employer use postponement?
A: As an employer, you have the right to postpone the enrolment of your employees for three months after the required commencement date of your scheme (also known as the ‘staging date’).  This can reduce your costs significantly. There may be other benefits too. You may want to use the postponement facility for administrative reasons.  For example, you may:

  • need time to assess all of your employees,
  • prefer to align the enrolment of members with the payroll process, or avoid paying a part-month of contributions,
  • want to avoid having to assess employees who are with you temporarily, or who have a one-off spike in earnings and would otherwise not qualify.

You are also able to postpone the enrolment of an employee for three months from the day they start with your company, or from the date an existing employee becomes eligible to join the scheme.

Some Frequently Asked Questions for Employees:

Q:   What if I work for more than one employer?  Will I be enrolled into each of my employer’s pension schemes?
A:  If you meet the eligibility criteria with each employment, you’ll be automatically enrolled into a workplace pension by each of your employers.  So you could end up being in two (or more) different workplace pensions, one for each employer.

Q: Can I take the money out?
A:  Currently, most people can’t take money from any pension scheme until they are aged at least 55.  The exact age you get your pension depends on the rules of the scheme.

Q:  I’m paying into a personal pension already, what should I do?
A:  It’s possible to have both a workplace pension and your own personal pension, so you could choose to continue paying into both.  Or you might choose to continue with just one of them.  It depends on your own circumstances.  With your workplace pension, you will receive a contribution from your employer that you won't get with your own personal pension.

Q:   What if I do not want to join a pension scheme, can I opt-out?
A: If you are automatically enrolled, you can opt-out of pension scheme membership once you have been enrolled into it, but not before.  You should think carefully about the benefits you are giving up by not being a member of a pension scheme.

Q:   If I opt-out, can I rejoin at a later date?
A: Yes, you can rejoin the relevant scheme at any point.

Q: I've been automatically enrolled and had pension scheme contributions deducted from my pay.  I want to opt out of the pension scheme – can I get my money back?
A: Yes, provided you opt out within one calendar month of receiving the letter addressed to you your contributions will be refunded to you.

You may find it helpful to complete our survey to establish if you are ready for auto enrolment.  Just click on the link below and answer a short list of questions:

So, now that you know a bit about the Auto Enrolment Process, you will see that there is quite a bit of administration involved.  At Throgmorton we thrive on administration and can take the pain out of this particular pension process for you.  Chances are we probably already hold accurate data on your workforce and can use this to assess who needs to be enrolled into your company pension scheme.  We can work with your pension provider to make sure your scheme is registered with the Pensions Regulator in time for your Staging Date and we’ll take over the monthly administration of the auto-enrolment process to ensure you are complying with this legislation each and every month.

If you would like to know more, please e-mail Angela Jeffery in our HR team.  

Yvonne Pownall
6 December 2013

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About Throgmorton: Throgmorton is one of the leading companies specialising in the provision of financial and administrative outsourcing to the UK SME financial services sector.

The information in this notice is intended for general guidance only. Throgmorton does not accept any responsibility for losses incurred to any person acting or refraining to act as a result of the information in this notice. Advice should be taken in the context of specific circumstances.

Copyright 2012 Throgmorton UK Limited. All rights reserved. Throgmorton is a trading name of Throgmorton UK Limited a company registered in England and Wales (company no 3853848) having its registered office at 4th Floor, Reading Bridge House, George Street, Reading, Berkshire, RG1 8LS.