Employers need to be aware of their obligations to auto-enrol staff in accordance with the statutory requirements under pensions legislation. These requirements are policed by the Pension’s Regulator (TPR) which has wide powers to fine employers for non-compliance.
Industry surveys suggest that employees are motivated by auto-enrolment. This may be an additional driver for employers to take action now and start planning their auto-enrolment strategy.
A summary of the key issues and action points for employers is set out below:
- Find out your ‘staging date’ – which is the date when the auto-enrolment requirements actually bite. TPR’s website has an online tool which helps employers do this. All you need to do is input your payroll reference number – which will be the reference number as at 1 April 2012. Larger employers will have already passed their staging dates. Staging for employers with fewer than 250 employees runs from 1 April 2014 to 1 April 2017. New businesses set up after 1 April 2012 will have later staging dates, up to 1 February 2018 in some cases.
- Assess your workforce – this will involve establishing whether the organisation employs ‘workers’, the definition of which is based on the definition in the Employment Rights Act 1996. The employer will need to assess the workforce at the staging date to establish its duties in respect of each worker. Different obligations apply depending on the age of the worker and the amount of his earnings – which means that employers will have to constantly monitor the workforce to make sure they remain compliant with their auto-enrolment obligations. The recent case of Clyde & Co has indicated that partners of LLP structures may also be considered to be workers for auto-enrolment purposes and such organisations will need professional advice on this point to protect their position.
- Check your systems – you will need to make sure your business software (including payroll software) supports the auto-enrolment requirements. If you use external payroll, then you will need to check with the providers.
- Form an auto-enrolment strategy – do you want to consider contractually enrolling all your employees into a qualifying pension scheme so that all their gross earnings are pensionable? Contractual enrolment can be attractive as it avoids the administrative burden of assessing the workforce. However, it will be more expensive. Also it may be appropriate to consider different qualifying pension schemes for different types of employee – it may be more attractive to auto-enrol casual staff into an industry wide scheme like NEST rather than your own scheme. Good quality advice from an Independent Financial Adviser (IFA) will be essential at this stage. When considering your strategy, you should consider the costs of employer contributions and the compliance costs (including making changes to your payroll software), the positive message you can give out to your workforce through the auto-enrolment communications exercise and your own time costs involved with planning and implementing your auto-enrolment strategy.
- Find a qualifying pension scheme – do not assume your company scheme will be a qualifying pension scheme or that the provider actually wants your business. You will not get advice from the scheme provider. Advice from a good IFA will be essential to help you find the right qualifying scheme for your employees.
- Start planning early – you should start planning for auto-enrolment at least a year before your staging date (ideally 18 months before). That said, some IFAs have some good auto-enrolment solutions and are able to help employers prepare for auto-enrolment quickly. We can make recommendations for you to help you find a good IFA.
- There are exhaustive communication requirements for different categories of workers. You may require legal assistance with the communication exercise to make sure you comply with the requirements.
- TPR has wide powers to fine employers for non-compliance with the auto-enrolment requirements. These include escalating daily fines of up to £10,000.
- There are employer protection measures in place to safeguard your staff against prohibitive recruitment conduct relating to your auto-enrolment obligations. You cannot induce staff to opt-out of the requirements either. This means you will have to review your flexible benefit platforms carefully to make sure they are compliant. Your staff have employment law rights not to suffer detriment as a result of your actions regarding auto-enrolment. Any dismissals arising from breaches of the auto-enrolment requirements or protections against prohibited recruitment conduct will be automatically unfair.
- You need to take extra care if any of your staff are high earners and have registered for protection from pensions tax charges – called enhanced or fixed protection. Workers in this category should opt out of scheme membership immediately after being auto-enrolled. Basically they have earned the maximum amount of pension benefits possible under the UK tax regime and cannot earn more without losing their tax protections. You should inform them of these important matters so they can take their own financial advice.