By Simon Fowler, Managing Director, Advanced Business Solutions
Pension Auto-Enrolment (PAE), legislation that requires every employer in the UK to enrol their staff into a workplace pension, has been around for a couple of years now. Yet with the Government taking a phased approach to the scheme there are still more than 1.2 million businesses set to move to a PAE scheme between July 2015 and April 2018. With non-compliance resulting in a possible fine, the onus is on companies more than ever to make sure they are as prepared as possible.
PAE was introduced in 2012 and since then UK businesses have been implementing the scheme, which has been described by the Government as the biggest change to saving for retirement for over a century.
This is a huge shift in how workplace pensions are managed and its implementation can be daunting, especially for smaller businesses with limited HR resources. With this in mind, I’ve come up with some top tips on how to successfully switch to an auto-enrolment pension scheme.
1) Know the business’ staging date
It is important to find out the staging date (the date when the law comes into effect for each company) for the business. This can be found on the The Pensions Regulator (TPR) website using a PAYE reference.
2) Assess the workforce
Establish a process for analysing who is an eligible jobholder and automatically enrol them into a qualifying pension scheme. An eligible jobholder is:
- Aged between 22 and state pension age
- Working or ordinarily working in the UK
- Earning above £10,000
Workers who are not eligible jobholders will still have a right to opt into or join a pension scheme.
3) Review current pension arrangements
Companies which have an existing pension arrangement, and plan to enrol eligible jobholders into this scheme, should check it qualifies as an automatic enrolment scheme – and that the payroll software in use can manage PAE. A qualifying scheme, must have minimum contributions or it must provide a minimum rate at which benefits will build up. A scheme suitable for automatic enrolment must not:
- Impose barriers to joining, such as probationary periods or age limits
- Require employees to make an active choice to join or take other action prior to joining
- Require the provision of extra information in order to stay in the scheme.
4) Assess self-serve software
The administration of PAE requires all employee data held in HR and payroll systems to be accurate and up-to-date. Without software that has a self-serve element updating all staff records could be a laborious process. It is also worth considering whether the software provider already has a relationship with the chosen pension provider to streamline payments. Some HR and payroll software has automated features that can help to relieve the administrative burden of PAE, and may negate the need to increase headcount to manage the extra duties.
5) Communicate the changes to your workers
Inform staff in writing of the changes detailing how they will be affected. The communication must be specific to the individual. The responsibility is on the employer to provide the correct information to the correct individual, at the correct time.
6) Automatically enrol eligible jobholders
Make all eligible jobholders a member of an automatic enrolment pension scheme and provide the relevant information to your pension provider about the eligible jobholders.
7) Register with The Pensions Regulator
Shortly after the staging date, businesses need to register online to inform The Pension Regulator as to how the new automatic enrolment duties have been fulfilled. On an ongoing basis companies will be required to maintain records about enrolled workers, their status within the scheme, the payment of contributions and the qualifying scheme itself.
8) Contribute to workers’ pensions
On the staging date, employers must start to contribute to the chosen pension scheme on behalf of their workers. The minimum contribution rates that an employer must pay into their workers’ pension scheme will be introduced gradually over a six year period (from 2012 to 2018). The minimum overall contribution will be 2% rising to 8%. Where the employee doesn’t contribute towards the pension, the employer will be expected to contribute the full minimum amount. Phasing will apply to most but not all, scheme providers will be able to tell companies if it applies to them.
By 2018 it is estimated that 9 million people will be automatically recruited into company-backed pension schemes.
Such a significant shake-up of company pensions puts a lot of demand on employers, but much of the administrative burden can be relieved with the right payroll software which can include functionality such as auto-enrolment mail merge schedules that ensure key letters are issued as part of compliance procedures.
The key for employers is to act sooner rather than later, as with fixed penalty notices of £400 for non-compliance, businesses cannot afford to be unprepared.