Auto enrolment is a requirement from October 2012 onwards, for employers to make a minimum 3% pension contribution by 2018, based on a band of qualifying earnings into a qualifying pension scheme for workers who are eligible jobholders.
The definition of these terms and a project plan for auto enrolment are set out below.
- Check your staging date for auto enrolment
How can I find out my staging date?
Auto enrolment starts in October 2012 for the largest employers with more than 120,000 employees. Employers with 250 or more persons in their PAYE scheme have staging dates between 1 October 2012 and 1 February 2014.
Employers with fewer persons in the PAYE scheme have later staging dates, with the final date being 1 February 2018 for the smallest employers and new employers.
How do the government work out when my staging date is?
This is based on your PAYE scheme on 1 April 2012. If you have more than one PAYE scheme, your staging date is the earliest one under your PAYE schemes.
- Decide who are your workers
Who is a worker?
The first step is to identify whether a person is a worker. This includes an individual who is an employee or who has a contract to perform work or services personally (e.g. a PAYE temporary worker) and is not undertaking the work as part of their own business (e.g. a limited company contractor). This could include someone working under a personal services contract even though, for tax purposes, they may be classed as self-employed.
Who is not a worker?
Office holders, including non-executive directors, company secretaries, board members of statutory bodies and trustees.
What about overseas workers?
A worker based in the UK who comes from overseas is still a worker for the requirements of auto enrolment.
What about employers based overseas?
An employer based overseas is not exempt from the auto enrolment requirements.
Who is exempt?
One-person companies (e.g. a limited company contractor), office holders (e.g. company secretaries, non-executive directors, trustees and board members of statutory bodies), the armed forces including cadet forces.
What about seafarers and offshore workers?
Seafarers and offshore workers may be included if they can be classed as workers and provided certain criteria are met.
Any other types of workers to consider?
You should look carefully at casuals and individuals on zero-hours contracts to decide whether they fall within the definition of worker. Personal service consultants and the self-employed may be workers if they are required under their contract to perform the services personally (e.g. if they cannot send a substitute). Volunteers are unlikely to be workers, unless they receive a payment or non-financial benefit. An employer who has seconded an employee is likely to have to auto enrol the secondee.
What about temps and agency workers?
The first step is to check who is responsible for paying temporary workers and agency workers or who actually pays them. If it is the hiring company, then they will have to auto enrol the worker. If not, the agency will have to auto enrol them into a qualifying pension scheme.
- Work out the type of worker
There are three types of workers: eligible jobholders, non-eligible jobholders and entitled workers.
Who is an eligible jobholder?
These are workers who must be automatically enrolled into a pension scheme. These workers:
- are aged 22 to state pension age
- are working or ordinarily working in the UK
- have qualifying earnings above the earnings trigger for automatic enrolment (£8,105pa)
- are not an existing member of the employer's qualifying scheme at the date of becoming eligible for auto enrolment.
Who is a non-eligible jobholder?
A worker who meets most of the requirements for automatic enrolment, but not all of them e.g. someone under age 22, or over state pension age but under age 75, earning above £5,564pa. They can choose to opt into auto enrolment and join the pension scheme.
Who is an entitled worker?
They are aged 16 – 74 but have earnings of less than £5,564pa. They have a right to join a pension scheme, including a scheme that is not an auto enrolment scheme, but are not eligible for auto enrolment.
Who do I have to auto enrol?
You have to auto enrol eligible jobholders and any non-eligible jobholder who asks to be auto enrolled.
Who do I have to make contributions for?
You have to make contributions for eligible jobholders and non-eligible jobholders who ask to be auto enrolled. You do not have to make contributions for entitled workers but can choose to do so if you wish.
- Decide which qualifying pension scheme you want to use
What is a qualifying pension scheme?
You can use either the government established National Employment Savings Trust (NEST), an existing scheme or set up a new one. NEST has to accept all employees who apply, under its public service obligation. Any new or existing scheme has to comply with certain requirements as a qualifying pension scheme.
What requirements does a qualifying pension scheme have to meet?
Occupational DC pension or DC group personal pension plan (GPPP):
- The scheme must satisfy certain quality requirements
- Minimum employer contributions of at least 3% and a total amount of contributions of at least 8% of the jobholder's qualifying earnings' over a 12 month period are required by October 2018
- The scheme must meet the 'test scheme standard' which includes a minimum level of pension provision
- The employer and actuary must certify that it meets this standard by 2016
The criteria for non-UK schemes are slightly different.
I already have a pension scheme – can I use that?
You can use an existing scheme but it may need to be amended to meet the criteria for a qualifying scheme. Your legal advisors will be able to check the scheme and advise you of any changes that need to be made.
- Prepare the information that you must provide to your workers
What information do I need to provide to workers?
Entitled workers and non-eligible jobholders have to be told that they have a right to join a pension scheme.
Non-eligible jobholders also need information about their right to opt into an automatic enrolment scheme.
Eligible jobholders need information about being automatically enrolled and their right to opt out.
Can an IFA provide the information?
The information has to be provided in writing, including email. A poster, link to an internet site or displaying on the internet is not enough. An IFA, scheme administrator or benefit consultant can provide the information but it remains the employer’s responsibility to ensure that it is provided on time and is accurate.
- Prepare to auto enrol
Can I delay my auto enrolment start date?
You can delay your start date by up to three months. To do this you must tell eligible jobholders at the start of the postponement period that you are doing so and give notice of the date that the postponement will end. You must also provide information about the qualifying scheme that you are going to use.
How much do I have to contribute?
Contributions depend on your staging date.
Click here to view table.
What are contributions based on?
Contributions are based on a band of annual qualifying earnings (£5,564 - £42,475 for 2012/13) in a pay reference period. The qualifying earnings will be reviewed annually.
What is included in qualifying earnings?
They are not based on basic pay alone. Qualifying earnings include:
- Wages, commission, bonuses and overtime
- Statutory maternity, paternity or adoption pay
- Statutory sick pay
When do I have to start contributions?
You will have to auto enrol eligible jobholders as soon as the staging date starts, unless you tell them in week one that you are not auto enrolling them until 3 months have elapsed. Similarly, new employees and existing employees who become eligible jobholders must be enrolled on the date they become eligible. Jobholder contributions must be calculated and deducted from pay from the relevant auto enrolment date.
What is the window for opting out?
All workers who are going to be automatically opted into a qualifying pension scheme have a one month window to opt out. If they do not opt out, they will be automatically enrolled into a qualifying pension scheme. After that they can choose to opt out at any point.
What do I do if the worker has not opted out?
If the worker is due to be paid before this one month period has lapsed, and they have not by that time opted out, you must automatically enrol them and make the employer contribution and deduct the worker’s contribution from their pay. If the worker subsequently opts out, you must refund the worker’s contribution within one month of receiving the opt-out notice. Money paid to the pension scheme by you is refunded to you.
Can I ask or pressurise job applicants or employees to opt out of auto enrolment?
New rules are being brought in to safeguard jobholders' rights to be enrolled in qualifying schemes. You cannot ask job applicants at interview whether they intend to opt out of auto enrolment and you cannot ask employees to opt out of auto enrolment. You cannot offer financial inducements to jobholders to opt out e.g. higher salaries or one off inducements. If you offer your employees a flexible benefits package you should review this because offering an alternative benefit to the percentage employer contribution could, under certain circumstances, be classed as an inducement.
When do I need to comply with these rules?
The rules to protect jobholders' rights take effect for all employers from 1 July 2012, not at the employer's staging date.
If a worker has opted out is that it?
Workers who opt out of a scheme they have been auto enrolled into can re-join the scheme at a later date. Workers who opt out must be automatically re-enrolled every three years.
- Compliance and working with the Pensions Regulator
Who is the Pensions Regulator?
The Pensions Regulator regulates pension schemes and will police employers’ compliance with auto enrolment.
What penalties are there for non-compliance from your staging date?
The Pensions Regulator will first issue a notice and require you to comply.
There is a fixed penalty notice of £400 for failure to comply with a notice.
If you still do not comply, a daily fine may be imposed on serious, prolonged or repeated breaches: £50 per day for employers with one to four employees rising to £10,000 per day for employers with more than 500 workers.
Are there penalties for inducements to opt out?
The Pensions Regulator has the power to fine employers that induce workers to opt out. These fixed penalties will range from £1,000 for employers with one to four workers to £5,000 for employers with more than 250 workers.
Are there any criminal sanctions?
An employer who is convicted of wilfully failing to comply with automatic enrolment, re-enrolment, or does not allow a jobholder to opt in will be liable to imprisonment or a fine or both.
What records must I keep?
You must keep electronic or paper filing systems records for auto enrolment for 6 years. These records include details on the schemes, its members, opt-ins, opt-outs and postponements. These must be available to produce to the Pensions Regulator on request. You should be familiar with the Pensions Regulator’s guidance on record keeping.