PENSIONS
All about automatic enrolment
Sophie Chapman LLB (Hons) ChMCIPPdip, group payroll and benefits manager, Gardline Limited discusses the monumental impact the introduction of automatic enrolment (AE) has had on payroll teams P rior to AE, pensions were a ‘nice to have’ but not a compulsory feature of a staff benefits package. Fast forward to now, and it seems strange to consider that
of age and qualifying earnings, and the worker must also ordinarily work in the UK. A worker will be automatically enrolled into a pension scheme if they’re aged between 22 and state pension age and earn at least £10,000 a year. A worker will be a non- eligible jobholder if they’re aged between 22 and 74, and earn between £6,240 and £10,000 a year, or earn over £10,000 a year and are aged 16 to 21, or between state pension age and 74. Once the scheme and assessments happened, administrative processes needed to be implemented for the initial enrolment. Letters and communications had to be sent, and a process created to manage any opt-outs or opt-ins. Employers can choose to use postponement at an employee’s start date and can postpone AE for up the three months. Postponement can only take place from the date legal duties started, a staff member’s first date of employment or the date a staff member first becomes eligible for AE. If an employer chooses to do this, they must let workers know within six weeks of joining the business when they’ll be enrolled. Re-enrolment Every three years, each company goes through a process of re-enrolment, where all eligible staff must be re-enrolled, and contributing to an eligible scheme from that date. The employer must write to staff who’ve been re-enrolled within six weeks of the re-enrolment date, explaining that they’ve been re-enrolled. Changes to AE Since AE was introduced, the Department for Work and Pensions has reviewed the earning thresholds annually. Interestingly, the earnings trigger for AE hasn’t changed since the 2014/2015 tax year,
with the lower earnings limit remaining stagnant since 2020/2021. Since AE was introduced in 2012, the minimum total percentage that must be contributed by the employee and employer together rose, from 2% to 5% from October 2017, and finally, to 8%, in October 2018. AE – what’s next? AE is widely regarded a success, with millions of workers now contributing to a pension scheme, who otherwise wouldn’t have access to a scheme or have opted into a scheme. There are, however, still concerns that many are still under-saving for retirement, and that the current eligibility criteria exclude those such as women or those who work part time, who could earn less and so may not be automatically enrolled. On 5 January 2022, Richard Holden member of Parliament, suggested AE is extended to all those who are 18 and over and that the lower qualifying earnings threshold is removed, thus widening the scope and impact of AE. Other issues raised are as follows: l tax relief for low earners l are gig workers covered by AE? l how can self-employed people be supported to save for retirement as they‘re not entitled to be automatically enrolled? l are there plans to increase contributions above the current 8% minimum? The effect of AE The introduction of AE has thrown the spotlight on pensions, shifting the emphasis from the employee to the employer. This requires employers (and payroll teams) to now have comprehensive knowledge of the processes and legislative requirements of AE. n
you could ever employ someone without providing a pension scheme. AE was, and still is, without doubt, one of the biggest changes to payroll process and legislation we’ve ever seen. Working in a company myself that didn’t provide a pension, I remember meeting a provider to discuss a scheme, not really knowing much about pensions at all. Introduced from October 2012, it changed the onus from the employee to the employer to ensure staff were part of a pension scheme. Preparing for AE When AE was first introduced, each employer was given a staging date according to the size of the business as of 1 April 2012, with largest employers first. Employers with an existing scheme had to ensure it was compliant. Those without a pension scheme had to find one which met the three tiers of requirements: l AE criteria l qualifying criteria l minimum requirements. Employers had to assess their workforce for the different categories of workers, of: l eligible jobholders – must be enrolled into a qualifying pension scheme, with the employer contributing l non-eligible jobholders – can choose to join the qualifying pension scheme, with the employer contributing l entitled workers – can choose to join a pension scheme, but it doesn’t have to be a qualifying scheme, nor is the employer required to contribute to it. The status rules use two main criteria
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| Professional in Payroll, Pensions and Reward |
Issue 84 | October 2022
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