Auto Enrolment

For businesses with 500 employees or less, auto-enrolment is now very real and there are a number of things you will have to do over the coming months to ensure that you comply with this new legislation – or face being fined by the Regulator.

The auto-enrolment process is highly complex. Firms will need to implement a scheme by a particular date, called their “staging date” which is determined by their payroll size in 2012. To do this, you need to assess which employees will need to be enrolled in the scheme and this is based on employees’ ages, wages and opt in or opt out choices.

Not sure where you might fit? The Pensions Regulator has created this useful calculator to find you’re staging date.

So – what do you need to do?

Once you know your staging date, you will need to start planning – and there is a lot to do!

If you are an Employer, you should ensure you understand the basic information on these changes, your staging date and which Employees will be affected. A review of existing arrangements should also be undertaken sooner rather than later. A review is also important as The Pensions Regulator, who will oversee the implementation process, does carry the power to levy fines of up to £400 or a fixed amount then daily fines of up to £10,000 on employers who do not take action.

If you are an Employee we can also undertake a full and tailored review as to where you sit currently within the proposed workplace pension’s reform regulations.

What are your duties?

The Pensions Regulator has published over 250 pages of notes to help employers comply with their new responsibilities, which in essence breaks down into 33 new pension responsibilities for each employer!

To make life a little easier, we have broken them down into 5 main areas – here is an overview of your main duties:

  • Categorise your workers. You may think everyone should be included in auto-enrolment, but it’s not that simple.
  • Communications. There are a number of different communications you need to send to different categories of worker at different points in time.
  • Keep detailed records of opt-ins and opt-outs.
    • Employees can opt-out
    • Employees who aren’t eligible now
    • May become eligible
    • Opted out employees may change their mind.

Detailed records relating to all this movement must be maintained and updated at all times.

  • Manage your payroll. Your payroll system will need to ensure the correct contributions are payable for each employee every time the payroll is run (see FAQ’s to see how much you will need to contribute).
  • Choose a pension plan. You’re also expected to select a pension plan and take decisions about which investment choices to offer your employees – decisions that are usually only taken by pension professionals with many years’ experience.

There has been lots of discussion around how auto-enrolment will affect employees and debate around whether employers are ready. The truth of the matter is this –there are significant costs and time pressures facing businesses in rising to the challenge of implementing auto enrolment, and with fines for non-compliance, businesses will also pay the price for getting it wrong (see fines in FAQ’s).

For businesses that haven’t yet staged, auto-enrolment is fast approaching. It’s no longer that bridge in the distance. This is something you have to deal with now but with the right help and support, it doesn’t have to be a big obstacle to cross.

Lowering Costs

Salary sacrifice (or exchange)
This is a government-approved process that’s been used by many large employers. In short, by reducing the employee’s salary by the amount of their pension contribution, national insurance contributions aren’t payable on the amount of salary given up or ‘exchanged’. Both you and your employees are better off as a result. Take a look at how much you could save:

Annual Employer Pension Cost Savings

Auto Enrolment Table 1

Postponement
You can choose to delay when you start auto enrolment by up to three months. Not just at outset, but also for all new employees. This can create significant cost savings too:

Auto Enrolment Table 2

The examples shown here are based on employees earning national average earnings with minimum contributions for auto-enrolment being paid.

When do you need to act?

Each business will have a different ‘staging date. This is the date set by the Pensions Regulator for auto-enrolment implementation for each band of employers across the UK.

All eligible employees must be auto-enrolled on this date (or from an earlier voluntary date if approved by the Pensions Regulator, or from a later Deferral Date if you are using Postponement).

There are many staging dates up to 2018 and to help employers discover theirs, the Pension Regulator has created a calculator which can be found here.

What to do next

The implications of auto-enrolment are huge for any business, no matter how big or small. There will be lots of issues to deal with – from employee engagement, through to setting up a pension scheme and deducting contributions from your payroll system for each employee, each and every month.

Already Staged?

For many large employers across the UK, implementing Auto-enrolment was just the start and many firms who opted to take care of the ongoing requirements themselves, are now finding out just how onerous it is.

Auto-enrolment is not a one off requirement and firms have many responsibilities to perform each and every month.

However, help is at hand by contacting us can provide you with a solution to take care of the ongoing administrative burdens. These include:

  • Communicate with workers – our auto-enrolment software can automatically create and distribute the communications required for each category of worker.
  • Management and recording of opt-outs and opt-ins using our online process.
  • Meeting ongoing record keeping, worker assessment and automatic enrolment requirements – automatic alerts ensure key tasks are never forgotten and our scheduling tool enables processes to be fully automated.

Auto-Enrolment FAQs

1. Is there any way around the need to comply with all the employer duties?

As an employer, you must comply with all of your duties. The Pensions Regulator will be auditing all companies to make sure they are fulfilling their duties and there are substantial fines that may be levied against those that do not comply.

2. Will NEST fulfil my all my employer duties?

No.

NEST is a pension scheme into which pension contributions from auto-enrolment can be paid and invested. However, there are employer responsibilities that must be carried out that NEST will not undertake on your behalf.

3. Do I still have to comply with the employer responsibilities if I have an existing pension plan?

Yes.

You still have employer duties even if you have a pension scheme that meets the minimum requirements.

4. What penalties will I face if I don’t comply?

The Pensions Regulator will check 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. You will have the right to challenge that notice, but according to the outcome of the investigation, a penalty may apply.

Fines can be levied where companies have:

  • Failed to register with the Regulator.
  • Coerced their employees to opt out.
  • Failed to meet monthly contributions.

The values are shown in this table:

Auto Enrolment Table 3

5. When would an employer use postponement?

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 and 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 employees 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.

6. Is salary exchange permitted to meet the minimum contribution levels?

Yes. Salary exchange is where an employee can give up part of their salary or bonus to their pension fund, resulting in their gross salary being reduced and the employee paying less tax and national insurance. As an employer, you will make savings on your National Insurance bill, which you can then use to reduce your costs.

7. What are the minimum contribution levels?

The minimum contributions that you must pay into your staff’s pension scheme are being introduced gradually over time:

Auto Enrolment Table 4

What could help you right now?

Whether you are an executive, professional, business owner or retiree our adviser Jerry Wellington will be able to review your current situation and agree with you a better way forward which will generally simplify matters and bring clarity to your financial future.

We look forward to hearing from you. Call us on 01872 278588 to arrange a meeting, at our cost, or email us at , we very much look forward to meeting you.

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