“#DontIgnoreIt” is the message being communicated to those small and medium sized employers who have yet to reach their staging date. The Regulator and DWP are seemingly less concerned about larger employers, who have survived auto-enrolment once already and (it is generally presumed) are much more likely to have effective systems in place to deal with the administrative burden moving forward.
For these larger employers, the prospect of the first triennial automatic re-enrolment process now looms (and is already a reality for some). In many respects the re-enrolment process is just repetition. Nevertheless, there are certain questions employers should be asking themselves to ensure that the process runs smoothly and that systems are in place to deal with any queries raised along the way. These questions are explored below:
What is the automatic re-enrolment date?
In broad terms, automatic re-enrolment occurs every three years and requires employers to repeat the process carried out at their staging dates – i.e. to ensure that eligible staff who were subject to auto enrolment before but who are not auto enrolled, are re- enrolled.
The date for automatic re-enrolment is subject to statutory constraints; it must fall within the three months either side of the third anniversary of the employer’s original staging date. Employers therefore have a six month discretionary window which provides them with some flexibility and may be helpful to employers who are subject to payroll restrictions or wish to streamline their processes. Nevertheless, the same re-enrolment date must be applied to all workers being re-enrolled.
Who must be automatically re-enrolled?
Employers should have records which identify workers who need to be automatically re-enrolled, as re-enrolment only applies to a worker who has previously had an automatic enrolment date with that employer.
Broadly speaking, automatic re-enrolment applies to an “eligible jobholder”1 who:
- was previously auto-enrolled but opted out of the scheme during the initial opt-out period (and has not subsequently become an active member of a qualifying scheme);
- ceased to be an active member of the scheme at some other point, after the end of the opt-out period (and has not subsequently become an active member of a qualifying scheme); or
- has reduced their contributions so as to take the total contributions below the statutory minimum (currently a 2% total minimum contribution with at least a 1% employer contribution for all employers whose staging date precedes 6 April 2018). This is unlikely to be an issue in practice until the statutory minimum contribution rates increase in future (to a 5% total minimum contribution from 6 April 2018 to 5 April 2019, and an 8% total minimum contribution which will apply from 6 April 2019 onwards). Please see the “STOPPRESS” below for further information on these dates following the November 2015 Autumn Statement.
Do any exceptions apply?
If any of the statutory exceptions applies, the obligation on the employer to re-enrol becomes discretionary2. The exceptions were introduced to acknowledge that pension saving “may not be appropriate for everyone”3 , although they only apply in limited circumstances, as follows:
- where a jobholder opted out, or ceased to be an active member, of the scheme within the 12 month period immediately preceding the re-enrolment date;
- where a jobholder is in their notice period, with notice having been given (by either the employer or the jobholder) within six weeks of the automatic re-enrolment date;
- where a jobholder receives a pension winding-up lump sum whilst being employed by an employer, ceases employment with the employer after the lump sum is paid and subsequently becomes re-employed by the same employer. In such cases, the employer’s duty to re-enrol becomes discretionary for the 12 month period after the payment so as to avoid the inadvertent triggering of an unauthorised payments charge by virtue of that jobholder continuing to accrue pension rights in connection with the employment to which the winding-up lump sum related; or
iv) where an employer has “reasonable grounds to believe” that a jobholder has claimed any lifetime allowance charge transitional protection (primary protection, enhanced protection, fixed protection 2012, fixed protection 2014 or individual protection 2014). This raises an interesting question as to which party should assume responsibility for ascertaining whether tax protection has been obtained. An individual would have had to apply to HMRC and would have received documentation confirming this, which they may not have disclosed to their employer. A practical approach to “flush out” any instances where this exception might apply would be for the employer to raise the question in their communications to jobholders who are otherwise going to be re-enrolled, and to follow up on a case by case basis.
What needs to be communicated, and to whom?
Any jobholder being re-enrolled must be written to within six weeks of the re-enrolment date to be told how automatic enrolment applies to them.
The employer must also complete an online “re-declaration of compliance”, and submit this to the Regulator within two months of the re-enrolment date.
A re-declaration of compliance must be submitted even if the employer has no eligible staff to re-enrol. The deadline in this instance is the day before the third anniversary of the original declaration of compliance.
Can jobholders opt out of automatic re-enrolment?
As with auto-enrolment, the jobholder can opt out of the scheme once they have been re-enrolled.
Members of occupational schemes may opt out within one month of the later of: the date on which they became an active member of that scheme, or the date on which they were given the re-enrolment information.
Members of personal pension schemes may opt out within one month of the date on which the agreement with the provider was deemed to exist.
Employers should continue to keep records of opt out notices and process any refunds due to the jobholder within one month of receipt of a valid opt out notice.
Auto-enrolment and re-enrolment can be a challenging process, with detailed technical requirements and if you require any assistance in this regard please do not hesitate to contact any member of the Pensions Team who would be happy to help.
STOP PRESS: The minimum contribution rate an employer must pay under auto enrolment is presently 1% of earnings, rising to 2% in October 2017 and 3% the year after (with employee contributions rising higher). The Chancellor has announced (in the recent Autumn Statement (November 2015)) that the dates for these increases are being pushed back six months to 6 April 2018 and 6 April 2019 respectively. The changes are not significant but are the first to be made to the timetable since the roll out started three years ago, and perhaps open the door for further delays in the future.