Everything you need to know about the new Pension Auto Enrolment scheme
What is Auto Enrolment?
The new Pension Auto Enrolment regulation brought in by the government requires employers to make provisions for a pension scheme for their employees. Every qualifying employee must be automatically enrolled into the scheme, and the employer must also make a mandatory contribution to it. The new regulation applies to every employer in the country, regardless of the number of employees it has.
Who Needs to be enrolled?
You must enrol the following workers into the Pension Auto Enrolment scheme:
- those aged 22 or older but below the normal state pension age
- those who are working or ordinarily work in the UK
- those whose earnings reach the Automatic Enrolment “earning trigger” limit – an annual amount of £10,000 for 2015-2016. See the Pensions Regulator’s website for more details
Why has the Change Been Made?
The previous private pension scheme was met with a poor reception from many employees. Employees previously had to opt-in to the pension scheme themselves, and employers had no obligation to make contributions to the scheme. Auto Enrolment seeks to solve these issues.
When does this Regulation Start?
If you do not pay your staff through a PAYE scheme then your “staging date”, set by the Pensions Regulator, will be 1st April 2017. If you do pay your staff via a PAYE scheme, then there is no across-the-board date for when this regulation comes into force. However, employers have to ensure that they comply with the new Pension Auto Enrolment regulations by the staging date assigned by the Pension Regulator. After this date, Auto Enrolment duties will come into effect for your business.
It is vital to know your staging date so that you can make the appropriate preparations for it in advance. You can find out what your staging date is from the Pensions Regulator’s website. You’ll need your PAYE reference to find out your staging date. If you don’t have your PAYE reference to hand, you can be sent a reminder by the Pensions Regulator by following the appropriate link on their website.
Responsibilities for the Employer
After the staging date, the employer takes on a new range of responsibilities with respect to the workplace pension scheme. These responsibilities should be undertaken at each pay period and include:
- assessing the age and earnings of all employees and auto-enrolling those who qualify for the scheme
- sending communication to those employees who are auto-enrolled on the scheme, providing information and giving the option to opt-out
- sending communication to those employees who do not automatically qualify, providing them with the option to opt-in to the scheme
- processing the requests of employees who have chosen to opt-in or opt-out
- keeping an activity log with a record of assessments, communication, opt-in processes, opt-out processes and contributions
- uploading payroll and assessment data to the Pension Provider’s system, thereby updating it
- remitting the contributions to the pension provider
Until 30th September 2017, employers must contribute at least 1% of the salary of their employee on every occasion that their employee is paid. Employees must contribute a minimum of 0.8% towards the pension scheme.
Enforcement actions can be taken by the Pensions Regulator if employers do not comply with the regulation. These actions can include:
- Informal action – the Pensions Regulator will provide guidance which will be issued by telephone, email, letter or in person. This guidance will detail any breaches made, and the employer will be provided with a timeframe within which all responsibilities must be complied with.
- Statutory notices – employers will be informed of a failure to carry out appropriate responsibilities or to properly pay contributions via a statutory notice. Unpaid contributions may accrue interest.
- Penalty notices – if any breaches are not rectified within the timeframe given by the Pensions Regulator then there will be a fixed penalty notice of £400 issued to the employer. If this is not paid, an escalating penalty notice will be issued. This penalty is a daily rate, and can range from £50 to £10,000, depending on the number of employees in the company. If contributions are not paid, a civil penalty can be issued. The penalty for this for individuals is £5000; for organisations it is £50,000
If you do receive a penalty notice, you should act quickly and ensure compliance. Make sure the appropriate contributions are paid within the timeframe specified by the Pensions Regulator.