Your guide to the Workplace Pensions Reforms
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www. scruttonbland .co.uk
Workplace Pension Reforms Automatic Enrolment Thank you for requesting information on the Workplace Pension Reforms. This guide is designed to give you a general overview of automatic enrolment and some of the areas that will need to be considered.
The Background The Pensions Act 2008 introduced the legislation requiring employers to enrol eligible staff into a suitable workplace pension scheme. This legislation affects all employers, as the Pensions Regulator states on its own website, ‘Whether you’re a hairdresser, an architect or employ a personal care assistant, if you employ at least one person you are an employer and you have certain legal duties.’ The legislation came into force from 1 October 2012 and is being phased in over a period of 6 years, with larger companies enrolling first. Although some of the larger companies experienced challenges, there were fewer employers affected and most already had their own Human Resources (HR) and pension departments and had the finances to be able to access the advice and support they needed.
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We are now at the point where auto enrolment is affecting smaller employers, which means that a large number of employers are enrolling with a small number of employees. This presents a different set of challenges as employers may not have the resources in-house to manage the additional work load, plus pension providers will now have a significantly larger number of pension schemes to set up. This means that rather than putting together one pension scheme with a large number of employees they now have a large number of pension schemes to set up with a small number of employees in each. Over the course of 2017/2018 there are estimated to be between 1.3 – 1.4 million employers who reach their staging date (when their automatic enrolment begins) of whom over 60% are expected to need access to a pension scheme. This will create significant pressure on those providing pension schemes, of which there is a decreasing number of providers. Choosing a suitable pension arrangement is important, however, there are many other decisions that an employer needs to make ahead of this. It is important to prepare you and your colleagues for your staging date and to have made the decisions needed ahead of that time. This guide will hopefully provide you with information about the process which will aid your planning.
What are the key steps? Step 1 Know your staging date Automatic enrolment is being phased in over a number of years. This means that each company will have their own date when the rules will apply. This is your ‘Staging Date’. The Pensions Regulator (TPR) will write to your company to confirm your staging date, but you can also find this out from TPR’s website www.tpr.gov.uk/staging-date You will need to know your business’s PAYE number. When you have received your letter from The Pensions Regulator please keep this safe and take a note of the letter code as you will need this when completing your Declaration of Compliance and any other contact you have with the Pensions Regulator. It is possible to bring your staging date forward, but you will need to agree this with the regulator. In all but a very few cases it will not be not possible to put your staging date back. You also need to take care if your business has multiple PAYE references as the nature of your employment contracts could impact on your staging date.
Step 2 Provide a point of contact The Pensions Regulator will want to know who they should contact at your company about their automatic enrolment duties. They will also issue regular email updates with help and guidance. It is important that these go to the right person in your organisation. The Pensions Regulator will write to your business to notify you of your staging date and request that you nominate an individual they can contact about this process. It is important that this letter is not ignored or lost as it includes a ‘letter code’ which will be needed to nominate a contact. Nominating a contact can be done on line by visiting www.tpr.gov.uk/staging-date
Step 3 Prepare a plan This is one of the most important steps. There are many decisions that need to be made ahead of your business’s staging date. Some of these may require additional steps such as board approval or contractual amendments which may also require consultation periods. It is advisable to bring together a team of people including those responsible for payroll, HR and any pension advisers you may have who have knowledge and expertise in this area.
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Auto enrolment will bring additional costs to the business. Not only from the employer’s pension contributions, but there may be additional costs such as software updates and advice. More importantly it will take time. Many employers have vastly underestimated the amount of time needed to implement automatic enrolment. This additional time can have an indirect cost on the business and place additional strain on staff who may already be busy with their existing workloads. Employers also need to decide on the definition of pensionable salary and the level of contributions they want to set. The table below details the minimum requirements laid down:
Chosen definition of earnings
Up to 31 March 2018
From 1 April 2018 to 31 March 2019
From 1 April 2019
Minimum Total Contribution
Minimum Employer Contribution
Minimum Total Contribution
Minimum Employer Contribution
Minimum Total Contribution
Minimum Employer Contribution
2% 1%
5% 2%
8% 3%
Qualifying Earnings
6% 3% 5% 2%
9% 4% 7% 3%
Basic Salary
3% 2% 2% 1%
Total Earnings
2% 1%
5% 2%
8% 3%
Alternative Definition
* It is possible to use an alternative definition of your own, however, this must consist of at least a basic salary and reflect at least 85% of the total payroll (this can be assessed at a scheme level).
Step 4 Who gets enrolled?
These regulations cover anyone who employs someone and could include carers, gardeners or cleaners, depending on how they are employed. It is important to review contracts of employment, whether written or verbal, to determine how individuals will be affected by auto enrolment. The table below outlines the duties based on age and salary.
Companies first have to determine who is considered to be a ‘worker’. This would normally include those who have a contract of employment, but could also include contractors, temporary staff, potentially some agency staff and self-employed people. It is not safe to rely on the exemption known as IR35.
Monthly Earnings
Age
From 16 to 21
From 22 to state pension age
From state pension age to 74
£490 and below
Has a right to join a pension scheme No obligation on employers to contribute
Over £490 and up to £833
Has the right to opt in
Over £833 Has a right to opt-in Automatically enrolled Has a right to opt-in Please note that the thresholds quoted above are in respect of the Tax Year 2017/18. These figures are based on monthly earnings, these will need to be adjusted to reflect different pay frequencies.
Step 5 Check your records
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You will need to provide a lot of information to the pension provider. This information needs to be accurate and easily accessible if auto enrolment is going to be smooth. Early engagement with key providers such as pension scheme and payroll providers will help you identify what information is needed and whether this can be easily provided in the required format. Where problems have arisen it is the transfer of information that has caused most issues. Many payroll systems can provide the information pension companies need, but often the information has either not been held on the payroll system, or there are additional fields that have needed to be completed. Step 6 Choose your software There are many systems available to assist with automatic enrolment duties such as assessment of staff, communications and record keeping. Often these are provided by payroll companies or pension providers. There are also independent systems available. It is important to discuss the usefulness and availability of any additional software. It is also important to find out if there are any extra supplementary costs.
Step 7 Choose a pension scheme If you do not have a pension scheme already you will need to make sure you have one available for your staging date. You cannot postpone (defer) your staging date, however, you are allowed to postpone the enrolment of individuals for up to 3 months from their joining date. Your employees will, however, have the option to opt-in straight away and you must have a scheme available for them from your staging date. There are various pension providers available from mainstream insurance companies to NEST, which is the workplace pension set up by the government. If you already have a pension scheme it may be possible to use this for your automatic enrolment duties, but you will need to make sure that this meets the requirements laid down for a Qualifying Workplace Pension Scheme i.e. a scheme that meets the government’s requirements for automatic enrolment. Many existing schemes are not able to be used for automatic enrolment and it is very important to discuss this with your existing pension provider or advisers as early as possible in the process.
Although there are various types of pension scheme available which are designed for automatic enrolment, they can differ significantly in cost and functionality. It is important to choose a pension scheme that is both competitive for your employees, but also one that complements your own business processes. It can be very valuable for an employer to seek advice in this area. Some pension advisers will be able to offer both advice on the pension provider and also the expertise needed to implement your chosen scheme as smoothly as possible, and help your employees understand the benefits of what you are providing.
What is NEST? The government is aware that some employers, particularly smaller ones, may not have access to pension schemes from the mainstream providers. To address this issue and ensure that all employers are able to meet their obligations, they have introduced the National Employment Savings Trust (NEST). NEST has a public service obligation which means that it has to accept any employer into the scheme. NEST is designed as a multi-employer pension scheme and offers a simple, low cost solution for employers looking to meet their obligations. The government has provided a loan for the NEST scheme to be set up. As a result NEST does have an initial 1.8% charge on the contributions to pay back its loan. This charge is temporary, but at present no end date has been set. Like other pension arrangements, NEST also charges an annual management charge, which is currently 0.3%pa. NEST does not offer employers specific support with the reforms and cannot give any advice. They have however tools and literature available online.
Step 8 Automatically enrol your staff By your staging date you will need to formally assess your employees and identify which members need to be automatically enrolled and which have a right to ‘opt-in’. If you have postponed your staging date you may not have to automatically enrol these people straight away, but potentially you will still need to complete an assessment. You may also still need to send information to your pension provider, even if you are not enrolling employees straight away. Your payroll or pension provider’s software may help manage this. You will also need to make sure that you submit your pension payments in time. Step 9 Communicate with your employees Automatic enrolment regulations require that specific information is sent to your employees within certain time limits. This means that your employees will know how automatic enrolment will affect them and what options they have. There are many templates available for you to use. The Pensions Regulator has some available on their website. Your payroll or pension provider’s software may also be able to provide support with the communications process.
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Step 10 Complete your Declaration of Compliance and scheme certification When you have completed your auto enrolment obligations you must complete a Declaration of Compliance. This confirms to the Pensions Regulator that you have fulfilled your legal obligations. You have 5 months from your staging date to submit your declaration, although you cannot submit this until you have enrolled your staff after any postponement period. The Pensions Regulator regularly monitors the use of this site and will contact you if they do not see any activity, so it would be wise to start this early and complete the information as soon as you know it. If you are not using ‘Qualifying Earnings’ as a definition of pensionable salary you will need to self-certify that you are using one of the alternative definitions. This must be completed within 1 month of your staging date and reviewed every 18 months at the latest.
Step 11 Maintain your records
Record keeping is an important requirement of the regulations. It is important that you keep accurate records of all activity, such as assessments plus the dates people are enrolled and correspondence sent. This needs to be provided to the Pensions Regulator if requested. If you are using auto enrolment software, this may offer a record keeping option, but you should check to make sure it is sufficient for your needs and that you can access the information when needed. Step 12 Re-enrol those who opt-out Every 3 years you will be required to re-enrol those employees who have previously opted- out of the pension scheme (this would not include anyone who was enrolled in the 12 months prior to your re-enrolment date). You are able to move your re-enrolment date by up to 3 months (before or after) the third anniversary of your staging date, if this is required. You will also be required to complete a further Declaration of Compliance at each re-enrolment date. At present employees who are re-enrolled into the pension scheme will still retain their rights to opt-out again.
So… what happens if I don’t comply? The Pensions Regulator (TPR) is charged by the Government to ensure that companies comply with workplace pensions regulations. The Pensions Regulator has powers to take action against employers who fail to carry out their duties. There is a 3-stage process that TPR will follow: Stage 1
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Stage 3 Escalating Penalty Notice If an employer fails to comply with the original compliance notice and subsequent fixed penalty notice, they will face daily escalating penalties. Number of employees* Daily rate 1-4 £50 5-49 £500 50-249 £2,500 250-499 £5,000 500+ £10,000 *This is generally the number of people in the employer’s PAYE scheme or the number of people affected by unpaid contributions. Where this number is not readily available, TPR may use various other sources to estimate this number.
Compliance/Unpaid Contributions Notice
This notice will detail the breach and require the employer to put things right in a specific timescale. A notice may also include a requirement to pay any missing contributions with interest added. Stage 2 Fixed Penalty Notice - £400 This notice will require employers to put right the breach identified in the previously issued compliance notice. Employers will be given at least 4 weeks from the date of the fixed penalty notice to put things right. Failure to comply by the specified date will result in the fixed penalty being applied.
Other penalties Wilful failure to comply
How can Scrutton Bland help? We have a number of specialist professional advisers in this area. Their wealth of knowledge and experience in the pensions market can help you through the whole process. We are able to offer you support whether this is your first pension scheme or if you already have an arrangement in place and need to review this to see if it can be used as a Qualifying Workplace Pension Scheme. Whether you are looking to be part of a larger multi-employer pension scheme or would prefer a specific independent pension scheme for your business, we are able to provide the advice and guidance that you need. This includes access to specialist, regulated, company pension advisers who can guide you through the whole process and provide advice to you and your business. Scrutton Bland also provides payroll services which include auto enrolment support, such as: • Monthly assessments • Statutory employer communications • Provide files for submission (new joiner and contribution files) • Support with monthly uploads and premium submissions (subject to the pension provider) • Assistance with the Declaration of Compliance Scrutton Bland’s payroll service is not a requirement to access our auto enrolment support facility, but clients who already use our payroll services are likely to benefit from a more streamlined solution.
Employers who wilfully fail to comply with the employer duties face fines and / or up to 2 years in prison. Inducements Employers who induce workers not to join or opt out of a pension scheme will be subject to the 3-stage compliance process Employers are not allowed to make any statement or ask any question during the recruitment process, which indicates (either explicitly or implicitly) that the worker may not join, or may opt out of a pension scheme. Separate penalties apply to employers using prohibited recruitment conduct. Number of employees* Fixed Penalty 1-4 £1,000 5-49 £1,500 50-249 £2,500 250-499 £5,000 *This is generally the number of people in the employer’s PAYE scheme or the number of people affected by unpaid contributions. Where this number is not readily available, TPR may use various other sources to estimate this number. detailed on the previous page. Prohibited recruitment conduct
Glossary of Terms Auto enrolment is full of new terminology (or jargon). Whilst we have tried to keep any industry jargon to a minimum, we have prepared this glossary to help you understand the terms you may hear or see about automatic enrolment. Assessment The process of identifying whether an Earnings trigger The earnings trigger sets the point
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when someone becomes eligible to be automatically enrolled into a qualifying workplace pension. The government reviews these every year and revises them if appropriate. Eligible jobholder Employees who are aged between 22 and state pension age and earn over the automatic enrolment earnings trigger. All eligible jobholders need to be automatically enrolled. Entitled worker Employees who earn less than the lower threshold (currently £490 or below per month). These employees have the right to join a scheme but employers are not obligated to contribute on their behalf. Gross qualifying earnings (assessment) Gross qualifying earnings are the gross earnings paid or payable for the pay reference period. Inducement Action taken by an employer where their main purpose is to encourage an employee to opt out of a pension scheme. Opt-in The process where a non-eligible jobholder elects to join the company’s pension scheme.
employee is to be automatically enrolled or given the right to join a pension scheme. Automatic enrolment earnings trigger The earnings threshold used when assessing an employee. Declaration of Compliance The online declaration to The Pensions Regulator that an employer has completed their obligations. Employers have up to 5 months from their staging date to complete this. Default fund Defined contribution schemes, such as group personal pension arrangements need to offer a suitable investment fund for individuals who are automatically enrolled into a pension scheme. Defined Benefit (DB) scheme A type of pension scheme where the amount of benefit at retirement is known in advance and usually based on earnings and years of service (e.g. final salary). Defined Contribution (DC) scheme A type of pension scheme where the contributions are set and the level of benefit is unknown until retirement.
Qualifying Workplace Pension Scheme A pension scheme that meets the government’s regulations (as laid down in the Pensions Act 2008) for a workplace pension scheme. Qualifying earnings The name given to a band of earnings a business can use to calculate contributions for automatic enrolment. Self-certification Employers who choose not to use qualifying earnings must self-certify that they are complying with one of the alternative definitions.
Opt-out The process where an employee who has been automatically enrolled into a pension scheme chooses not to remain in the scheme. Pay reference period The period of time over which staff earn their salary or wage, for example monthly or weekly. Pensionable pay The definition of earnings being used to calculate the level of pension contributions, for example the employee’s basic salary. Phasing The process whereby the minimum contribution requirement increases over the period to October 2018. Postponement The option of deferring the automatic enrolment of employees. Employers can choose to postpone enrolling eligible employees for up to 3 months from their start date. Employees will retain the right to opt-in at any time.
Staging date The date that auto enrolment affects you and your business. Earnings thresholds for the current year
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Pay Reference Period 2017/2018 Annual
1 Week
Fortnight
4 Weeks
Monthly
Quarterly
Bi-annual
Lower level of qualifying earnings
£5,876
£113
£226
£452
£490
£1,469
£2,938
Earnings trigger for automatic enrolment
£10,000
£192
£384
£768
£833
£2,499
£4,998
Upper level of qualifying earnings
£45,000
£866
£1,731
£3,462
£3,750
£11,250
£22,500
About Scrutton Bland Scrutton Bland regularly advises businesses on a range of services, from employee benefits, raising finance and mitigating tax to independent financial planning and insurance. We enjoy taking a collaborative approach, supporting our clients in a broad range of projects and on portfolios of all shapes and sizes. All of our teams are based in-house and pride themselves on offering a professional and personal service. Please contact one of our specialist advisers for help and advice on all issues regarding Auto Enrolment.
Contact Us
James Bolton Employee Benefits Partner james.bolton@scruttonbland.co.uk Tel 01223 928066 Laurie Clark Senior Employee Benefit Consultant laurie.clark@scruttonbland.co.uk Tel 01223 928067 Jennie Stringer Employee Benefit Relationship Manager jennie.stringer@scruttonbland.co.uk Tel 01223 928065
Scrutton Bland Financial Services Limited is authorised and regulated by the Financial Conduct Authority. ‘Partner’ is used to refer to a member of Scrutton Bland LLP A list of Members may be inspected on our website www.scruttonbland.co.uk
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