The biggest change to have happened to workplace pensions in generations.
By Alan Simpson, Associate, JRW Chartered Accountants
The UK Government estimates that more than seven million people are not saving enough for their retirement or not even saving for their retirement at all. Because we are all living longer and living longer in retirement the size of the national pension fund needs to be greater to pay for this. This is why the Government may not be able to afford to keep state pensions at their current level in the long term, hence the introduction of the biggest change to have happened to workplace pensions in generations – Automatic Enrolment.
The workplace pensions reform will be staged over a six year period depending on the size of the employer and to make sure you understand the impact on your business it is vital that you familiarise yourself with Auto Enrolment now.
To help you to do this here is a useful guide to the Auto Enrolment terminology as well as a guide to your legal and financial obligations as an employer.
THE FIRST STEPS
There are three key new responsibilities for all employers to assess and make provision for as follows:
1. Know your staging date
The date that the new law applies to your company is known as your staging date. This date is determined by the size of your largest PAYE scheme on 1st April 2012.
2. Assess your workforce
Workers who will need to be automatically enrolled in a pension scheme are called eligible jobholders. An eligible jobholder is:
• Aged between 22 and state pension age
• Working or ordinarily working in the UK
• Earning above £10,000
You will need to assess who in your workforce is an eligible jobholder. You must automatically enrol eligible jobholders into a qualifying pension scheme and make contributions on their behalf to that pension scheme. Workers who are not eligible jobholders will still have a right to opt into a pension scheme or a right to join one.
3. Review your pension arrangements
If you have an existing pension scheme for your workers, you may wish to consider enrolling all eligible jobholders into this scheme. To do this, your existing scheme will need to qualify
as an automatic enrolment scheme. If you do not have an existing pension scheme or you cannot use your existing pension scheme for automatic enrolment, you will need to choose another pension scheme. In this case, all eligible jobholders will need to be automatically enrolled in your new pension scheme. To be a qualifying scheme, minimum contributions or above must be made or it must provide a minimum rate at which benefits will build up.
THE NEXT STEPS
Once you have looked at the first three stages of responsibility as an employer, you then need to need to carry out the following actions.
Communicate the changes
You must inform all your workers in writing about the changes detailing how they are affected by the changes. This communication must be provided in writing (including email) and needs to be specific to the individual.
Automatically enrol your eligible job holders
There is a process that you will need to follow in order to make an eligible jobholder a member of an automatic enrolment pension scheme and specific information about your eligible jobholders will also need to be supplied to pension scheme representatives as appropriate.
Register with The Pensions Regulator
You are required to inform The Pensions Regulator how you have fulfilled your automatic enrolment duties by registering this information online shortly after your staging date.
You will also need to maintain records about enrolled workers, their status within the scheme, payment of contributions and the qualifying scheme itself.
Contribute to workers pensions
Starting on your staging date, you must contribute to your chosen pension scheme on behalf of your workers. The minimum contribution rates that an employer must pay into their workers’ pension scheme will be introduced gradually over a 6 year period (from 2012 to 2018). This is known as phasing, the minimum overall contribution will be 2% rising to 8%. Where your employee doesn’t contribute towards the pension, the employer will be expected to contribute the full minimum amount.
Employer minimum contribution
Total minimum contribution
Employer’s staging date to *05/04/18
2% (including 1% staff contribution)
*06/04/18 — *05/04/19
5% (including 3% staff contribution)
8% (including 5% staff contribution)
*The proposed dates are subject to Parliament approval
THE TERMINOLOGY EXPLAINED:
A worker who:
Is aged at least 16 and under 75. Works, or ordinarily works in the UK, and earns above the lower earnings level for qualifying earnings.
Refers to those workers who are eligible for automatic enrolment.
This is a jobholder who:
Is aged at least 22 but has not yet reached state pension age and earns above the earnings trigger for automatic enrolment.
Non eligible jobholder
Refers to those workers who are not eligible for automatic enrolment (though they can choose to opt in to an automatic enrolment scheme). This is a jobholder who:
Is aged at least 16 and under 75 and earns above the lower earnings level of qualifying earnings but below the earnings trigger for automatic enrolment. Or
Is aged at least 16 and under 22, or between state pension age and under 75, and earns above the earnings trigger for automatic enrolment.
An entitled worker is aged at least 16 and under 75. Works, or ordinarily works in the UK, and earns below the lower earnings level for qualifying earnings.
This includes the following gross pay elements – Salary, Wages, Commission, Bonuses, Overtime, Statutory sick pay, Statutory maternity, paternity and adoption pay.
These earnings are used to identify whether an individual is an eligible jobholder or a non eligible jobholder and may also be used to determine the level of contributions a scheme must require.
This is the date assigned to an employer based on the number of people in their PAYE scheme (as of 1st April 2012) and the date from which the employer will assume responsibilities for Automatic Enrolment.
Your automatic enrolment duties include increasing the amounts you and your staff pay into the pension over a number of years. This is known as ‘phasing’. The date the minimum contributions were due to be increased has changed in order to align with the tax year. So now, instead of contributions increasing from 2% to 5% in October 2017, and from 5% to 8% in October 2018, they will now rise in April 2018 and 2019. Despite what some press articles may have implied, this is not a delay to automatic enrolment, and employers’ staging dates will remain the same.
Pay reference period
This refers to the period of time to which the employer pays the worker their regular wage or salary. The pay reference period is not the same as the tax period.
The employer may choose to delay their staging date by up to 3 months, this may be where they require further time to get ready for Automatic Enrolment. Eligible postponement refers to a situation where an employer may choose to postpone an eligible jobholder to avoid pro rata contributions or to manage an increase in earnings of a worker which could change their status from a temporary basis to an eligible jobholder.
A pension scheme that meets certain minimum standards by law, there are different standards depending on the type of scheme.
Auto Enrolment is undoubtedly the biggest change to have happened to workplace pensions provision in the UK for generations and if you are a client of JRW, you will already have spoken with one of our team about it. But please remember, as an employer Auto Enrolment is something that can’t be put off as quite simply you will be not meeting your legal obligations as an employer and you will be breaking the law.
If you need help and advice about Auto Enrolment and the impact it will have on your business please don’t hesitate to get in touch with us.