Auto enrolment is a huge change in the employment landscape for UK businesses, yet many business owners and employers haven’t even heard about workplace pensions and have no idea what automatic enrolment is. It has long been recognised that most people are not saving enough for retirement and, as a result may not be able to afford to live comfortably in their retirement on just the State Pension. As people are also living longer, there is increasing strain on the State benefits system, so private pension provision is becoming increasingly important.
In order to encourage workers to start building up retirement benefits, pension reforms were introduced by the Government through the Pensions Act 2008 that requires all employers to offer workplace pension schemes and to enrol eligible workers into their schemes. These reforms have become known as automatic enrolment.
The reforms recognise that not all workers are eligible for automatic enrolment and that others, such as the self-employed, do not qualify. Provision has been made to allow those who fall outside of automatic enrolment to also join pension schemes and start building retirement benefits.
Automatic enrolment has been designed so that eligible workers who want to build up retirement savings don’t have to take any action themselves – employers will automatically enrol eligible workers into a workplace pension scheme and deduct any contributions that the member is required to pay from their wages or salary, and then pay into the pension scheme on their behalf.
What an employer must do
Your first step as a new employer should be to clarify your staging date. This is the date from which your Auto Enrolment reporting responsibilities will begin. You will need your employers PAYE References and details of your employee’s annual pay.
You will need to provide The Pensions Regulator with the contact details of the most senior person within your business as the nominated primary contact, you can also nominate a secondary contact. This should be someone who will be assisting in the implementation of the workplace pension in your business such as your payroll service provider or Accountant.
Auto enrolling your employees on time is vitally important and you should then submit a declaration of compliance to The Pensions Regulator. Employers must not try to coerce employees into not enrolling in the pension scheme.
This could be in the form of acting to discourage existing employees from auto enrolment or making it clear when hiring new employees that those who wish to be auto enrolled will be considered unfavourably.
Penalties for non compliance
If you do not comply with statutory notices, you may be issued with a fixed penalty notice. These types of penalties are set at £400.
The Pensions Regulator is also authorised to issue an escalating penalty. These types of penalties will vary depending on the number of staff you employ, for example, if you employ a high number of staff then the penalty will be much higher, with these penalties ranging from £50 to £10,000 per day.
The Pensions Regulator also have at their disposal an alternative the civil penalty. This penalty may be utilised if you fail to pay the contributions that you owe your staff when they contribute to their pension scheme. This penalty can be up to £5,000 for individuals, for example, business owners or managers. There can also be fines of up to £50,000 for the company itself.
The final option that The Pensions Regulator can call upon is the ‘Prohibited Recruitment Conduct Penalty Notice’. The severity of this penalty varies depending on how many staff are employed in the company and can range from £1,000 to £5,000.
The Pensions Regulator can and will initiate formal legal proceedings to recover penalties that businesses and employers have been issued with. Employers who are found to have breached their duties also face criminal prosecution.
Which employees need to be enrolled?
You will need to assess your employees to confirm who needs to be enrolled. The assessment can either be done manually or automatically using business software and will need to be carried out each time the workforce changes for example if a new employee joins or somebody has a birthday.
If you are using business software (for payroll, HR and pensions administration), this could be set up to automatically assess and monitor staff ages, earnings and pension contributions paid into a pension scheme both by members of staff and yourself. If you don’t, the table below shows how to assess staff based on their ages and how much they earn.
*State Pension Age
Employee has a right to join a pension scheme
If they ask, as an employer, you must provide a pension scheme for them, but you do not have to pay contributions into a pension scheme on their behalf.
Employee has a right to opt in
If your employee asks to be put into a pension scheme, you must put them in a pension scheme that can be used for automatic enrolment and pay regular contributions.
Employee must be enrolled
You must put these members of staff into a pension scheme that can be used for automatic enrolment and pay regular contributions. You do not need to ask their permission. If a member of staff gives notice, or you give them notice, to leave employment before you have completed this process, you then have a choice whether to enrol them or not. The employer also has a choice whether to enrol a director who meets these age and earnings criteria.
It is strongly advised that you take independent advice when setting up your pension scheme. You must bear in mind that most Certified and Chartered Accountants are not qualified as Financial Advisors and so whilst they may be able to help in the setting up and running of your Auto enrolment pension scheme they are not generally qualified to give advice concerning which pension provider you should use, in fact, unless they hold a suitable and current IFA qualification they would be in breach of the law in providing such advice.