Like all employers with workers in the UK, Propcos will be required to comply with the new pensions automatic enrolment requirements. To ensure compliance Propcos will need to review their existing pension arrangements, update their payroll systems and put in place new HR processes. In our experience, this takes around 12 to 18 months, so time is of the essence. Failure to comply could lead to enforcement action being taken by the Pensions Regulator, which may include a significant fine.
What is automatic enrolment?
New legal requirements are being phased in that will ultimately apply to all employers with workers in the UK, requiring them to automatically enrol eligible workers into a qualifying pension scheme and pay minimum employer contributions or provide a minimum level of benefits. Employers will also be required to provide information to workers about their new rights and to re-enrol eligible workers who opt-out approximately every three years. In addition, certain protections have been given to workers (with effect from 1 July 2012) to safeguard their automatic enrolment rights.
When will the automatic enrolment requirements apply?
An employer must be prepared to comply with these new legal requirements from its ‘staging date’. An employer’s staging date is determined by the number of people in its largest PAYE payroll scheme on 1 April 2012 (based upon information held by the Pensions Regulator on that date):
- an employer with between 250 and 5,999 people in its largest payroll scheme on 1 April 2012 will have a staging date between 1 May 2013 and 1 February 2014;
- an employer with between 50 and 249 people in its largest payroll scheme on 1 April 2012 will have a staging date between 1 April 2014 and 1 April 2015; and
- an employer with less than 50 people in its largest payroll scheme on 1 April 2012 will have a staging date between 1 June 2015 and 1 April 2017.
An employer can find out its staging date on the Pensions Regulator’s website or by contacting the Pensions Regulator on 0845 600 0707. The requirements already apply to employers that had 6,000 or more people in their largest payroll scheme on 1 April 2012.
Who is eligible to be automatically enrolled?
The automatic enrolment requirements apply to workers who are working or ordinarily working in the UK. Importantly this includes employees, temporary and casual workers (including zero-hours workers), agency workers and contractors and consultants who are not genuinely self-employed.
For automatic enrolment purposes, workers are divided into 3 categories:
- eligible jobholders – who must be automatically enrolled into a qualifying pension scheme (under which the employer pays a minimum level of contributions or provides a minimum level of benefits);
- non-eligible jobholders – who have the right to opt-in to a qualifying pension scheme, and should be treated as eligible jobholders if they do so; and
- entitled workers – who must be given the opportunity to join a workplace pension scheme, but they are not entitled to employer contributions or a minimum level of benefits.
Which category a worker falls into will depend upon their age and earnings. For example, an eligible jobholder is a worker who is working, or ordinarily working, in the UK and who is:
- between age 22 and state pension age; and
- earning more than £9,440 per annum (for the 2013/14 tax year).
Employers will need to monitor their workers’ earnings in every pay period to check whether they exceed the relevant earnings thresholds (measured on a pro rata basis).
What must Propcos do to prepare?
Updating pensions, payroll and HR systems to ensure that an organisation is able to comply with its automatic enrolment obligations is a very involved process and, in our experience, it takes around 12 to 18 months to prepare. An organisation should appoint an individual or team to:
- make key decisions about the organisation’s automatic enrolment strategy (such as which scheme to use, what the contribution rates will be, whether to operate a waiting period etc); and
- oversee the changes that will need to be made to pensions, payroll and HR.
Communication is also key to the success of automatic enrolment. Employers need to develop an effective communication strategy to ensure that their staff know what is happening, when and how they stand to benefit. Employers also need to ensure that they are prepared to provide workers with the statutory automatic enrolment information that they are legally required to provide within the statutory deadlines.