The Financial Conduct Authority does not regulate on Auto-Enrolment.
Laws have been set into process regarding the automatic enrolment of employees into an employment pension scheme. It is now mandatory that all UK employers have a pension’s scheme in place for their employees that meet all the requirements of the Workplace Pension regulations. Here is a simple guide to Auto-Enrolment
1. Find out when your employer duties start
Officially, this would be your staging date for Auto-Enrolment which is based on your company size. Larger companies are staged earlier and for employers with less than 30 employers it is based on their PAYE reference. Planning ahead will pay dividends in the end as it will enable you to plan and prepare so you are not caught by surprise and without any system to manage your duties. To establish your staging date, try this link: http://www.thepensionsregulator.gov.uk/employers/tools/staging-date.aspx
2. Understand which workers you are obligated to enrol and what contributions you are required to make
This is perhaps one of the most confusing elements of Auto-Enrolment as this is where the jargon begins. Essentially, the Pensions Regulator has established minimum requirements as to who should be automatically eligible, who can join if they so wish and what you have to do for everyone else. The requirements are primarily based on income levels and age. The minimum contribution is based on band earnings, though there are other prescribed ways of meeting the criteria. Please remember these are only minimum requirements, so you can if you wish make it much simpler than this, so long as the minimum criterion is met.
3. Good communication is essential
Apart from your statutory duties to inform each grouping of employees of their rights under Auto-Enrolment, it is also important these changes are communicated in a positive way to ensure they genuinely appreciate the new benefit they will be receiving and so further embed the feeling they are an appreciated member of staff. You may wish to absorb some of the cost by utilising a pay review to direct part of the employer contribution into their pension. Either way, the style of communication and methods utilised are crucial if you wish to minimise confusion and ensure your employees feel genuinely valued.
4. Consider whether you can use your current scheme to meet your new duties
In the majority of cases, an existing scheme can be adapted to meet the requirements of Auto-Enrolment. One of the outcomes of this legislation however, is pension scheme providers have become far more competitive in order to win the business. It therefore may well be worth putting your scheme out to tender as it is highly likely you will save costs and improve performance.
5. Think about what you might need from a pension scheme
You need to consider how important certain features are. Do you want a basic scheme that simply meets the minimum requirements under the new legislation, like for example the National Employment Savings Trust (NEST)? Or do you want a scheme that provides greater fund access, more flexible funding options and the ability to accept transfers in from any existing arrangements your employees may have in place already? It may be that you decide to utilise both solutions, depending on the employee.
6. Consider your funding options
When it comes to contribution levels, there are a number of ways to satisfy the new legislation and you are not obligated to use one method for all your employees. If it is more beneficial, you can apply different methods of meeting the minimum funding requirements to different elements of your workforce. It does not have to be ‘one size fits all’. You can also phase contributions in over the first few years of the scheme to ease your business into these new costs and to help remove some of the impact of this change to your employee’s net pay. This is particularly important to lower earners, as more of their net pay is required to meet their core living costs.
You may also wish to use pay reviews to absorb some of the cost impact to your business, providing the pensions contribution versus pay rise is not put forward as a choice the employee can make, as this could be construed as an attempt to encourage the employee into ‘opting out’ (see below).
7. Understand how opting out works
Whilst Employers are obligated to auto-enrol all eligible employees, the employee has the option to ‘opt out’ of the scheme if they wish. There is a process that needs to be followed and up to at least one month’s contribution has to be deducted before an ‘opt-out notice’ can be processed and the contribution refunded if already deducted. Any eligible employee who has chosen to ‘opt out’ must be re-enrolled every three years. Finally, employers or their representatives must not encourage employees to ‘opt out’, there are punitive actions that can be taken for doing so which includes the employer receiving a penalty fine.
8. Understand how postponement works
Employers may at their discretion choose to utilise Postponement, through which they can delay membership by up to three months. There are three main circumstances where this can be used:
a) At the employers ‘staging date’ for Auto-Enrolment’
b) When the employer takes on a new member of staff (so perhaps after a three month probationary period has expired)
c) If a ‘Non-Eligible’ member of staff become temporarily ‘Eligible’ due to a high levels of overtime in the assessment period or a bonus takes them temporarily into a different employee definition under ‘Auto Enrolment’ rules. This is one of the key benefits of utilising postponement as it can be used to iron out fluctuations in an employee’s earnings.
Postponement must be applied for within one month of the staging date of the scheme or individual.
9. Consider Salary Exchange
This is an effective way to reduce NI costs for the employer and/or the employee, or to increase the investment into the member’s pension. To exercise this option the employer must obtain the express consent of the employee, if not written into their contract already. Alternatively, their employment contract can be amended to allow for ‘contractual engagement’, though employees do have the right to refuse it, but in practice rarely if this is communicated in a clear and positive way.
10. Provide accurate and up-to-date information to the Scheme Provider
This is self-explanatory, but it is nevertheless important that accurate records are kept of joiners, leavers, changes to salary, etc. in order to ensure the scheme remains compliant with the regulation.
11. Register with The Pensions Regulator (TPR)
The employer’s scheme (or schemes) must be registered with the regulator to ensure compliance. This can be done by post or online and must be repeated every three years.
12. Keep detailed pension records for up to six years
This is of course standard practice anyway with all accounting information for any UK business. This can be either stored electronic records or paper files, providing the information is accurate and clear should the regulator request to see them. It should include the ages and earnings of everyone that has worked for the employer over this period, opt outs, categories of workers, etc. This is also a legal obligation.
13. How will I manage all this?
At Keystone we have already assisted hundreds of businesses in establishing workplace pension schemes that adhere to and meet obligations under this new legislation. We operate independently of the providers, so once our team has tailored your pension scheme based on the various options available, we can then approach providers in this market to find your company the most suitable scheme and best possible terms for you. Keystone Wealth Management can also assist with presenting the various changes to your employees. This is an extra service we gladly provide as we feel it's very important they understand what is happening, why it is happening and the impact it will have on them as individuals as well as, potential benefits workplace pension schemes will ultimately generate.
Please note that the value of pensions and investments can fall as well as rise. You may get back less than you invested.
We are happy to meet for an initial consultancy either in person or remotely. Give us a call or contact us, we are on standby to assist you.
For more information or to request an initial free consultation dial +44 (0) 208 939 4545
Keystone Wealth Management Ltd, Vine House, 143 London Road Kingston-Upon-Thames Surrey KT2 6NH United Kingdom, firstname.lastname@example.org