PENSION AUTOMATIC ENROLLMENT
Some Background to Auto Enrolment
Auto Enrolment was introduced under the Pensions Act 2008 to encourage more workers to save for their retirement. The first, larger, employers automatically enrolled in 2012 and now all employers, regardless of size, are obliged to auto-enrol their employees.
Currently, a total minimum of 5% of an employees pay must be paid into the pension. The employer must pay at least 2% but may choose to pay more. From April 2019 this will increase to a total minimum of 8% of an employees pay of which the employer must pay at least 3%.
How does it work?
Employers need to assess the workforce to identify which category their employees fall into. There are three categories:
- Eligible Jobholder
- Non-eligible Jobholder
- Entitled Jobholder
These categories are based on age and earnings and the employer will have different duties and obligations for each employee depending upon their classification.
Those employees in the Eligible Jobholder category (aged between 22 and the State Pension age, earns over £10,000.00 a year and works in the UK) will be automatically enrolled into the workplace pension. They can choose to opt out but if they choose to do nothing, they will be automatically enrolled.
Those that fall into the Non-eligible Jobholder category fall into two categories as follows:
- Fall outside of the required age bracket i.e. ages between 16-21 or between the State Pension age – 74 and who earns above the auto enrolment earnings trigger of £10,000.00.
- Are aged between 16-74 and earn above £6,032.00 (the lower earnings level for qualifying earnings) but below £10,000.00 the auto enrolment earnings trigger.
Although the employer is not required to automatically enrol non-eligible jobholders into the pension scheme, these workers have a right to opt in and should they choose to do so, the employer is obliged to make contributions to their pension pot.
Those that are classed as Entitled Jobholders, aged between 16-74 but earns less than the lower earnings level for qualifying earnings, also have a right to join the workplace pension. However, the employer is not obliged to automatically enrol them into the pension scheme nor are they required to make any contributions to the pension pot. Entitled Jobholders who ask to join a pension scheme do not have opt-out rights.
Are any companies exempt from Pension Auto Enrolment?
A company can be exempt from auto enrolment duties if it is comprised only of directors. In this scenario, the employer is not legally required to operate an auto enrolment workplace pension scheme. The following are reasons why a company may be exempt from auto enrolment duties by reason of Director Exemption:
- There is only one director and there are no other staff working for the company.
- The only people working for the company are directors and none of them have an employment contract.
- The only people working for the company are directors and only one of them has an employment contract.
- The company does not or no longer employs any staff because it has ceased trading/is terminally insolvent e.g. has gone into liquidation/has been dissolved.
What if an employee decides they don’t want
to be Auto-Enrolled?
All employees have to be assessed for Auto Enrolment, however, employees have one month from being auto enrolled to opt out and any contributions that they have made to the pension must be repaid to them. If an employee chooses to leave the pension scheme after the opt-out period they are classed as ‘scheme leavers’ and no contribution refunds are due. Employees who have opted out will be assessed and enrolled again on the third anniversary of their opt out date, providing they meet required criteria.
How will the Pensions Regulator
A declaration of compliance is an employer’s legal responsibility and is used to inform the Pensions Regulator of what has been done to comply with an employer’s automatic enrolment duties. All employers are required to submit this declaration to the Pensions Regulator within five months of their staging date regardless of whether they have postponed auto enrolment or not. Auto enrolment duties are considered incomplete until a declaration has been submitted and received.
How can EPS help employers with their Auto Enrolment duties?
Our team of professionals have been involved with Auto Enrolment since it was first rolled out. Our experience and knowledge allows us to provide a comprehensive Auto Enrolment service to our clients to ensure complete compliance. This service can be provided as part of our fully managed offering and our recent experience demonstrates that clients are keen to take advantage of this. Pensions are now an integral part of payroll and a key component of the overall benefits package employers offer their employees. We can also help you select a Pension Provider that will satisfy your companies’ specific requirements.
The steps EPS will take to Auto Enrolment compliance
- Establish staging date
- Decide if postponement period will be taken
- Select Pension Provider
- Decide on employer contribution rate (if above minimum rate)
- Send correspondence to all employees updating them regarding the enrolment decision
- Configure payroll system with the above details so auto enrolment process is run automatically each period
- Communicate with pension provider and upload any pension files to provider’s online portal