Auto-enrolment means that all employers in the UK must automatically enrol eligible jobholders and pay employer contributions in to a qualifying pension scheme from a date after 1 October 2012.
The starting date is determined by how many workers an employer has in its PAYE scheme as at 1 April 2012. The following tables act as a useful guide.
Click here to view table.
Contributions will be phased in over 3 transitional periods
Click here to view table.
Employers will need to identify those workers that are eligible for enrolment and may use a combination of pension schemes both existing and new to meet their obligations, as long as the pension scheme(s) they select satisfy minimum quality standards.
To date auto-enrolment has exposed a number of legal and practical challenges for our clients due to elements of the legislation that have been described in some quarters as “insanely complex”. Fortunately, the DWP announced on the 11 February 2013 that a consultation will be undertaken on proposals to make the auto-enrolment process simpler. Based on feedback to date the DWP has identified three immediate areas of concern as follows:
- Making assessment of the workforce easier
- Making it easier for money purchase schemes to show they meet the scheme quality requirements
- Removing the duty to enrol particular groups such as high earners who benefit from protection because they have already exceeded the lifetime allowance for tax purposes
In addition we anticipate that the practical application and definitions of “qualifying earnings”, the “relevant pay reference period” and the processes of “opting in” and “opting out” will be looked at among other areas of complexity before any resolutions are reached. A target date for any proposed changes has been identified as the early part of 2014 before the bulk of medium and small employers reach their staging dates.
Whilst some employers may consider this legislative consultation exercise sufficient justification to delay looking at auto-enrolment, our experience to date would suggest the contrary. Approximately 30,000 employers will have to auto-enrol staff over the four month period between April to July 2014, placing a considerable strain on scheme providers. To date we are aware of at least one employer with over 1,000 employees who has struggled to source a pension provider of its choice; some providers are already seeking more than six months notice in order to set up a new contract based money purchase scheme that is compatible with auto-enrolment.
From our experience to date it is clear that medium and small employers are aware of the headline requirements to auto-enrol workers by a set date and the need to make contributions to an employee’s pension. However, what appears to be less clear are the administrative, data management and communication demands of auto-enrolment and the duties set out in the legislation with regard to these issues. Unlike the Stakeholder regime that was introduced a decade ago, employers also need to take note that auto-enrolment will be policed by the Pensions Regulator.
In approaching these challenges Pitmans LLP is working closely with a number of pension specialists so that it can provide comprehensive advice and practical solutions for its clients. The legislation has thrown up a number of pension and employment issues that many consider straight forward on first glance though in practice they can be complex. We have advised on areas such as:
- assessing whether existing pension schemes need to be amended to meet the qualifying criteria for auto enrolment;
- determining whether consultants or self employed contractors are “workers”;
- confirming that employee contracts and an employer’s day to day HR practices comply with the auto-enrolment legislation;
- finalising the details of service agreements with third party service providers; and
- rationalising existing pension schemes.
This is not an exhaustive list and the legal complexities of auto enrolment should not be underestimated.
Courtesy of Thames Valley Business Magazine April 2013