The law on workplace pensions changed with the Pensions Act 2008. Under this act every employer in the UK must enrol certain staff into a pension scheme and contribute towards it. Staging (when such duties start to apply) started in October 2012 and is being rolled out on the basis of largest to small PAYE schemes.
More than half a million small and micro employers will reach their staging date in 2016. Businesses with less than 30 workers generally have a staging date of between 1 July 2016 and 1 March 2017. Employer’s must work out which staff are affected by auto-enrolment regardless of the size or the sector of the business.
It has been reported that many employers are facing fines for failing to meet automatic enrolment duties. 1 in 5 employers are missing their staging dates. Statutory notices are initially issued by The Pensions Regulator (TPR) for failing to comply and then a fixed penalty of £400 which is payable within a specific period. There are also escalating penalty notices which are issued when employer’s fail to comply with a statutory notice which can be a daily rate of £50 to £10,000 depending on the number of staff employers’ have.
What is Auto Enrolment?
Auto Enrolment is where eligible employees that meet certain criteria must be enrolled into a pension scheme. They must be over 22 years of age, earning over £10,000 per annum, under the state pension age and working (or usually work) in the UK. It is an initiative by the government to ensure people have an income on top of their State Pension when they retire.
The staging date is the date a pension scheme must be ready for employees to be enrolled into. At the staging date, employer’s also have the right to postponement of auto enrolment for 3 months. However, they must still write to the staff informing them of the postponement and this must be done within 6 weeks of the staging date. During the postponement period employees also have the option to opt in early to a pension scheme.
Employees that have been automatically enrolled into a pension scheme must make a minimum of 1% contributions of their qualifying earnings. Qualifying earnings are between £486 and £3583 per month. Employers must also make contributions of same amount. From the 6th of April 2018, the minimum rate will increase to 2% and then 3% from the 6th of April 2019.
Employers must notify the Pensions Regulator of their compliance of auto enrolment duties within 5 months of their staging date. They do that by sending in a “declaration of compliance” which states how they have met their auto enrolment duties.
Whatever your staging date, it is essential for employers to plan for the changes in good time. Consider the following action points:
- Nominate a point of contact
- Know your staging date and develop a plan
- Assess your workforce
- Review your pension arrangements
- Communicate the changes to all workers
- Automatically enrol eligible jobholders into a pension scheme
- Register with the Pensions Regulator and keep records
- Contribute to your workers' pensions
Further information on pension reform is available at www.thepensionregulator.gov.uk
We can help you with the setting-up and administration of the Pension scheme. For more information or advice, please Contact Us.
By Faisal Qadir