By Steve Conley of Workplace Pensions Direct
If you employ workers (including contractors), you should by now have heard about Automatic Enrolment (AE for short). It is now compulsory for all employers in the U.K. to set up a qualifying workplace pension scheme for their workers, and for the employer to contribute. You may be worried about your “staging date” (the go live date), which you need to know one year in advance, and ongoing legal duties.
Here, I will explain the jargon to make it easier to understand and comply.
Who is The Pensions Regulator (TPR)?
They’re like the HMRC of pensions. They have the same powers as HMRC, so you need to pay attention to what they ask.
Your TPR letter says “Act Now: You have legal duties”. The duty falls on you the employer, not your accountant, payroll service provider or your financial adviser. If you are willing and able to pay for help you might like to check with your adviser first, don’t assume they are willing to help you for the fees you are willing and able to pay. If you are considering a DIY approach then TPR’s website contains all the information you will need.
As you look at your staging date, you might assume (incorrectly) that this is the first day you need to do something. The staging date is the date you need to have set something up by, and the process is not simple, particularly if you are new to pensions, planning ahead is key.
Almost 100,000 businesses stage in the first quarter of next year, and already they are choosing their pension scheme, checking their payroll systems, checking their employment contracts and checking what further actions need to be taken, and by whom. You might want to join the queues sooner, rather than later.
According to research from Leeds University, the small business can expect to spend 17.5 days setting up, and three days a month running, an AE arrangement. In terms of elapsed time, something like assessment of impact on payroll could take a month or two. This assumes you know what you are doing and are up-to-speed with all the information available to you on TPR’s website. You need to project manage your AE solution, and you need to start as soon as possible.
To keep things simple and make sure you cover all the bases, there are three key components to any AE project checklist:
- Payroll set up and maintenance
- Managing your duties as an employer records and
- Setting up a pension scheme and enrolling your staff
Put all your employee records in order to avoid errors.
Review and update payroll software.
Deduct and pay the appropriate minimum employee and employer contributions, based on the salary definition you have chosen.
The minimum contributions are:
1% employer plus 1% employee from staging date to October 2017
2% employer plus 3% employee from October 2017 to October 2018
3% employer plus 5% employee after October 2018
The salary definition you choose can make a significant impact on your payroll cost, for example banded ‘qualifying’ earnings is total earnings between £5,825 and £42,385 per annum.
Make timely payments of pension contributions to your pension provider.
Work out your timetable.
Inform your workforce about AE, and if using postponement (a waiting period of up to 3 months, you decide in designing your scheme, used for admitting or assessing potential members), send out notices.
Assess your workers, your payroll software may automate this process. Eligible workers are aged between 22 and State Pension Age and earn over £10,000 per annum must be automatically enrolled and the employer must contribute. Allow non-eligible workers to join a scheme and if they do the employer must contribute, all workers between age 16 and 75 who earn over £5,824 per annum and not eligible workers. All other workers between age 16 and 75 are eligible and must be given the right to join but the employer doesn’t need to contribute.
Manage opt-outs (automatically enrolled workers choosing to leave the pension) and refunds in the opt-out period.
Complete a declaration and re-declarations for TPR.
Automatically re-enrol eligible workers every three years.
Setting up a qualifying pension
As an employer, choosing a pension scheme is your responsibility. You may already have a scheme in place, this needs to be checked to see if it is, or can easily be made, a qualifying workplace pension scheme.
You need to consider if your pension scheme will give tax relief at source or through net pay, as workers who are not paid above the tax personal allowance could be deprived of tax relief.
Consider and review the suitability of your pension scheme, especially the default fund in which 80% of members typically stay invested.
Complete a pension self-certification form.
Begin your Declaration of Compliance as soon as you can, and no later than 5 months after staging. Failure to comply leads to the issue of a statutory notice and then a fixed penalty fine of £400 if the matter is not resolved. Continued non-compliance can result in escalating fines from £50 per day for 1-4 employees, or £500 per day for 5 – 49 employees.
The rollout of automatic enrolment to small and micro firms only began recently, and we will see 1.8 million firms stage over the next two years. Small firms will face different pressures from larger companies who have already staged, and should be encouraged to avoid the queues by starting early, and sourcing help from those experts who are willing to advise for the fees small businesses are willing to pay.