Automatic Enrolment for Employers
What is Automatic Enrolment?
The government has introduced a new law designed to help people save more for their retirement. It requires all employers to enrol eligible workers into a workplace pension scheme if they are not already in one. Automatic enrolment started being phased in from October 2012 and will be fully rolled out by 2018.
During the next three years over 1.8 million employers will have to set up and contribute to a pension scheme suitable for automatic enrolment. It is essential to start planning early and research suggests an ideal timeframe of 6 months before your ‘Staging Date ‘to ensure compliance with the new law.
Know your staging date
The staging date is a key piece of information when planning ahead for automatic enrolment. An employers staging date is determined by the number of persons in the largest PAYE scheme that they use, based on the data from HMRC held by The Pensions Regulator on 1st April 2012. This is the date the new employer duties apply for an employer.
Nominating a point of contact
Employer contact – most senior responsible person
When The Pension Regulator writes to an employer, they will ask them to confirm the most senior responsible person or business owner as the ‘employer contact’ for their automatic enrolment duties.
Additional contact – the person who manages automatic enrolment on the employer’s behalf
If someone else (eg a member of the employer’s staff or an accountant, bookkeeper, financial adviser, payroll provider, etc) will be carrying out the day-to-day tasks of managing automatic enrolment, the employer can confirm that person as their ‘additional contact’.
Understand your workforce
An employer will need to understand the different types of workers and what defines them, as well as the corresponding employer duties for each type of worker. Some types of contracts will require close examination to identify where the employer duties lie e.g. for agency workers or contractors.
Working out your costs
From your staging date, you will be required to pay regular contributions into your staff pension scheme for staff who have been automatically enrolled or who have opted in to your scheme.
The table below shows the minimum amounts the employer will need to pay.
The employer can pay more than their minimum contribution (if they want to) and the staff member must pay the difference, to reach the total minimum contribution.
The employer's minimum contribution starts at 1% and will rise to 3% from April 2019 onwards. When employers start paying contributions after their staging date, they'll need to be calculated and deducted via their payroll process.
In addition to pension contribution costs, there is a range of other costs that the employer will need to consider. These might include:
- setting up a pension scheme
- getting payroll software to help manage automatic enrolment
- chargeable advice and support
- the employer's own time involved in setting up automatic enrolment
Business software and systems processes
Many of the functions necessary to comply with automatic enrolment duties are process-driven. Business software, e.g. payroll, HR and pensions administration should be set up to automate the majority of these processes, such as monitoring ages and earnings of workers, deducting pension contributions, issuing communications and keeping records.
Choosing a pension scheme
If you have staff to automatically enrol you will need a pension scheme. You will need to either set up a new scheme or check your existing scheme meets certain criteria.
Finding a new scheme
You will need to find a scheme for your staff that will work with your payroll process or software your using. It’s advisable that you allow plenty of time to make the right choice.
There are a number of different types of pension schemes available and different types of providers offering these schemes. The type of scheme most likely to be available to you is a scheme run by a large, specialist provider that is available to many different employers.
Checking an existing scheme
If you have an existing pension scheme you may want to use it for automatic enrolment. This scheme will need to meet certain criteria, which could involve changing the scheme rules or terms and conditions.
Check with your pension scheme to see whether they can use it for automatic enrolment. If you can't use your existing scheme, you need to choose a new one that meets the requirements for automatic enrolment.
Assessing and enrolling staff
Formal assessment of staff
At your staging date, you must carry out a formal assessment of your staff to work out your automatic enrolment duties for individual members of staff.
Once this is done, you must ensure eligible staff are enrolled by sending your pension scheme the information they need to make them active members of the scheme. You have six weeks from your staging date to do this (unless postponement is being used).
Staff may wish to join, opt in or opt out of (or leave) a scheme and in each case you’ll need to understand what you need to do. For staff who ask to:
- join a pension scheme – you must provide a pension scheme for your staff to pay contributions into, but you do not have to contribute
- opt into a pension scheme – you must put your staff into a pension scheme that can be used for automatic enrolment and pay regular contributions
- opt out of a pension scheme – your staff who have been enrolled or who have opted in, have the right to opt out within a certain period, and you must act on this request
If a member of staff gives notice, or an employer gives them notice, to leave employment before the employer has completed the automatic enrolment process, the employer has a choice whether to enrol them or not.
You may use postponement on your staging date to delay automatic enrolment for some or all of your staff for up to three months. For example, if you know someone will be leaving within three months of your staging date, you may apply postponement for that employee. This means you won’t need to assess this staff member to identify what duties they have until the last day of the postponement period, at which point you must enrol any staff members who are eligible.
If you are using postponement and a member of staff requests to be enrolled during the postponement period, they must be put into a pension scheme.
Once employees are active members of a pension scheme, there are ongoing responsibilities for the employer, such as ensuring contributions are paid on time and that any notices relating to staff opting in or opting out are processed and accurate records maintained.
Writing to your staff
Once staff have been assessed to work out who to put into a pension scheme they must be given information which explains how automatic enrolment applies to them. ‘Giving’ information includes:
- sending hard copy information by post or internal mail
- handing over hard copy information by hand
- sending information in the body of an email
- sending information in pdf or other attachments by email
It does not include signposting to an internet or intranet site, attaching a URL or displaying a poster in the workplace.
Within 6 weeks of their staging date you must write to each member of staff who:
- is being enrolled: explaining what has been done (ie that contributions will be deducted from their wages and paid into a pension scheme and that they have a right to opt out of the scheme, if they wish to do so) and provide details of the pension scheme chosen for staff
- is not being enrolled: to let them know they have a right to opt in or join a pension scheme that can be used for automatic enrolment explaining how this would apply to them
Knowing your ongoing duties
Automatic enrolment is a continuing responsibility for employers. An employer's duties do not end after their staging date.
Employers can avoid penalties by understanding how they must meet their duties. You must:
- keep records of your automatic enrolment activities (this includes the names and addresses of staff they've enrolled, records of when contributions were paid into a pension scheme, staff opt-in notices, pension scheme reference or registry numbers and information sent to the pension provider) for six years and opt-out notices for four years
- monitor the ages and earnings of your new and existing staff and check their automatic enrolment eligibility every month (software can help you do this). As staff become eligible they will need to be enrolled
- enrol staff and write to them to let them know how automatic enrolment applies to them as they become eligible
- pay contributions into your workplace pension scheme
Responsibility for meeting these duties ultimately lies with the employer.
Completing the declaration of compliance
An employer must show they are meeting their automatic enrolment duties. This means completing a declaration of compliance using The Pensions Regulator’s online service within five months from their staging date. This confirms to the regulator that they have fulfilled their legal duties.
The duty to declare lies with the employer, but they are able to authorise someone to do this on their behalf.
A declaration of compliance has to be completed for every employer who employed staff on their staging date, even if they have not had to enrol anyone.
An employer’s declaration of compliance is a legal duty. If it is not completed within five months of their staging date they could be fined.
Automatic re-enrolment occurs every three years and is similar to the duties that an employer carries out on their staging date or deferral date if they used postponement.
An employer must re-enrol certain staff into a pension scheme that can be used for automatic enrolment, if they’re not already active members of one.
- should work out if you have anyone to re-enrol
- must choose a re-enrolment date that falls anywhere within a six-month window. This starts three months before the third anniversary of their original staging date and ends three months after it
- do not need to inform The Pensions Regulator of your chosen re-enrolment date until you complete your re-declaration of compliance
- must identify eligible staff, re-enrol them on your chosen date and start contributing to your pensions scheme from that date
- must write to the eligible staff individually, within six weeks of their chosen re-enrolment date, to tell them how automatic enrolment applies to them
- must complete a re-declaration of compliance no later than two months after their re-enrolment date
- postponement cannot be applied at re-enrolment
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