Auto Enrolment – the key facts

Auto Enrolment involves all employers having to auto enrol, by law, all eligible employees into a qualifying pension scheme, and to make minimum contributions on their behalf.

It is part of a Government initiative to increase personal retirement savings. This is as a result of the fact that a large number of the working population in the UK are not saving adequately for retirement or taking advantage of personal pension schemes. This coupled with the reality that we are living longer and have an increasing proportion of individuals of retirement age compared to those of a working age has led to the changes to pension legislation.

The long-term objective is to ensure that the majority of the UK population has a private pension when they retire.

What it means for employers…

Unlike Group Stakeholder schemes which were introduced in 2001, Auto Enrolment is enshrined in Law, which means all employers must fulfil all of their 214 duties or run the risk of receiving hefty fines imposed by the Pensions Regulator….or even imprisonment.

Here at Lifetime we have a robust solution that is helping businesses cope with the difficulties that Auto Enrolment poses. Our solution lifts the burden of worry, time, resource, systems and unnecessary costs off the shoulders of Employers, leaving businesses owners to concentrate on doing what they do best…running their business.

Contact Lifetime for a free consultation, our Auto-Enrolment Specialists will help your business find the best way forward for becoming AE ready.

When are the changes happening..?

The changes started 1st October 2012 for larger employers; the timetable is scheduled to run until 1st April 2017 which is when all smaller businesses should have then achieved their Staging Date.

Key Duties

It is vital that you start planning as early as possible; the Pensions Regulator recommends at least 18 months from start to finish for implementation due to the size of the task.  There will also be tens of thousands of businesses staging in the coming months and years up to 2017, so leaving it to the last minute is not an option for fear of being last in the queue and not achieving your staging date.

These are some of the Key Duties you need to consider in your plan.

1. Know your staging date

This is the date by which you need to have a qualifying scheme in place. For medium to large employers your staging date is based on the number of employees you have, for smaller employers (50 employees or less) your staging date is based on your PAYE reference. Missing this date could result in you being fined up to £2500 per day.

2. If you have an existing scheme

If you are considering keeping your existing scheme you will need to review it to ensure it qualifies for Auto Enrolment. If it doesn’t, you’ll need to make the necessary changes to ensure it does.  It may be the case that your existing provider won’t allow you to make any changes, in which case you’ll have to look for a new scheme.

3. Assess your workforce

A crucial point of any analysis is to have a proper understanding of how the new duties relate to the workforce. An important feature of the new requirements is the range of employees and other workers who are covered by one of the new employer duties. It is essential to establish which employees and workers the various different duties apply to.

The scope of the new duties goes beyond just regular UK employees (whether part-time or full-time) and includes all those who may be deemed to be ‘workers’.

4. Choose a pension scheme

When deciding on a scheme you will need to ensure it meets the Auto Enrolment criteria. You will also need to consider how flexible the scheme is for your business, what ongoing administrative and systems support is available, and what the cost of this.

5. Provide workers with information about the changes

You need to communicate to your staff the changes that are happening and how the incoming scheme impacts them, and if applicable how it differs from any existing scheme. You also need to advise your staff that they have the right to Opt Out if they wish.

6. Register with the regulator

Registration is compulsory. You have four calendar months from your staging date to register, so you need to be prepared well ahead. If you don’t register in time, you won’t have complied with all of your employer duties.

7. Make contributions

This is a complex area that requires you every month, to calculate and pay your own contributions as well as calculating and deducting the amount payable for each employee from their pensionable pay. You need to take account of any new employees and do this within the regulatory monthly time limits. Different schemes have different time limits which must be met as required by law.

8. Process any opt-out notices

Any jobholder who has been automatically enrolled into a pension scheme or opted in can opt-out within one month of them being enrolled and given information about enrolment. If they do so, their scheme membership is cancelled from inception and any contributions must be refunded.

9. Process opt-in or joining requests

Jobholders who do not need to be automatically enrolled can nonetheless choose to opt-in to an automatic enrolment scheme and when they do so you must arrange their membership and pay contributions in respect of them.

10. Avoid inducements and prohibited activity

It is important that any workers decision to opt out of a pension scheme or stop saving for retirement altogether should be taken freely and without influence by the employer. The Pensions Regulator may look to impose fines on employers who use inducements; the employee may also bring a complaint via an employment tribunal if they have suffered detriment or dismissal arising from the employer’s breach of Auto Enrolment duties.

11. Keep accurate records

There are 2 types of records that need to be kept…

1) Staff Records

2) Pension Scheme Records

Both sets of records need to be kept for between 4 and 6 years depending on the type of information. Records need to be kept up to date at all times as the Pension Regulator may make a random request from you to provide this information in a timely manner.

This is where having the right systems in place makes the job of keeping and reporting records much easier.

Managing Auto-Enrolment?

Knowing all of your duties is the first step, you also need to assess the best way of achieving them.

  • If you have existing systems, can they take on these new responsibilities?
  • Who will administer Auto-Enrolment beyond implementation…your HR?…Payroll?  Do they have the time or Pensions Expertise to carry out the tasks required of them by the Regulator?
  • What middleware options do you have, this is the potential of needing additional systems and software to meet your obligations.
  • Are you going to need more resource?
  • What cost is involved..?  Knowing this sooner rather than later will help you to factor it in to your business running costs and business plan.

What Auto-Enrolment means for Employees

Will it affect me?

You are eligible for Auto-Enrolment if you are:

  • Not already in a qualifying workplace pension scheme;
  • At least 22 years old;
  • Below state pension age;
  • Earn more than £10,000 a year.
  • Work or ordinarily work in the UK (under their contract)

However, even if you do not qualify to be automatically enrolled, you still have the right to join the scheme. If you tell your employer that you would like to opt in to the scheme, they must allow you to do so. Equally, you can also opt out if you are eligible and do not wish to join the Scheme.

How will I benefit?

By joining the scheme you will have a pension fund for your retirement. This will be made up of regular contributions made by both you and your employer. The minimum contribution amounts for each are defined in the regulations.

When does it start?

The scheme has staged implementation dates relative to the number of employees your company has, so those with the most employees will be required to implement the scheme first. The first implementation date is 1st October 2012. However, employers are free to choose an earlier implementation date than their staging date if they so wish.

Why should I join?

A pension is a way of saving money to provide you with an income when you retire and is therefore an important investment in your future retirement. Pensions ensure people have another income, on top of the State Pension when they retire.

Most people save into a pension because of their associated benefits such as the employer contributions that are made in addition to your own, and also the contribution made by the government through tax relief (tax relief means that some of your money that would have gone to the government as tax, goes into your pension pot instead).

Pensions help ensure you can maintain the standard of living you are used to as a working person.

How do I join?

Once your staged implementation date arrives (or sooner if your employer wishes) your employer will automatically enrol you (if you fall into the eligible employee category) into the available pension scheme, so your contribution will be deducted at the next payroll, unless you choose to opt-out.

Your employer will communicate the scheme to you prior to the introduction of auto-enrolment, which should include details of the minimum contribution you will be expected to make.

What will I contribute if I join?

The amount of money paid in by you, your employer and by the government from tax relief is worked out as a percentage of your earnings.

The minimum level of contributions by yourself and your employer are shown in the table below:

Timing

Employer Contribution

Employee Contribution

Total Contribution

Oct 2012 – Sept 2017

1%

1%

2%

Oct 2017 – Sept 2018

2%

3%

5%

Oct 2018 onwards

3%

5%

8%

Please note that your employer may choose to contribute a higher amount than the levels shown above.

How much pension will I accumulate?

This will depend on how much you earn, how much you contribute (you can opt to pay more than the minimum requirement when you join the scheme), how many years you contribute for and how your pension is invested.

Can I opt out?

Yes, you can choose to opt-out of your scheme immediately or any time after. Your employer will give you the opt-out deadline and, provided you follow this, you will be refunded for any payments already made. If you opt-out too late, any payments will remain in your pension pot.

Can I join later?

If you have opted out, you can re-join at a later date if you wish. Your employer will have a duty to automatically enrol you back into the scheme every three years, if you are eligible. This gives you the opportunity to reconsider your decision.

More information:

Refer to your employer who should be able to give you details about their plans for Auto-Enrolment and how it will affect you.

Further information is available on the following websites:

http://www.thepensionsregulator.gov.uk/individuals.aspx

https://www.gov.uk/workplace-pensions