Blog by BASDA member, FMP Global
What is pension auto-enrolment? Pension auto-enrolment was a new reform introduced in 2012, which has seen radical changes to the pensions industry, employers’ responsibilities and pension provision for millions of workers in the UK. New legislation now requires employers to enrol ‘eligible’ workers into a qualifying pension scheme and directly contribute to their pension. Eligible workers are defined as those that are aged 22 years or older, under state pension age, working in Great Britain and earning more than the income tax personal allowance (currently £9,440). Whilst most large organisations have either launched or are in the final stages of rolling out pensions auto-enrolment, this article aims to offer advice to the 30,000 medium to small employers who have to comply with the new pensions legislation later this year. This is by no means a definitive guide to pension auto-enrolment, but should provide a good starting point in what can be a challenging process.
1. Find out when your company’s staging date is
If it is not already clearly etched on your brain, then you need to find out when your company’s staging date is to avoid penalties of up to £10,000 or even imprisonment. Your staging date is when you, as an employer, are legally obliged to start auto-enrolling your employees into a qualifying pension scheme. It is worth noting that in some cases it is possible to bring your staging date forward or even defer auto-enrolment slightly. If you opt to defer auto-enrolling your employees, there are still actions that will need to be undertaken, so make sure you are clear of what your responsibilities are.
2. Don’t underestimate the amount of work involved!
Plan early, block sufficient time out in your diary and involve payroll from the start. Since auto-enrolment started rolling out just over a year ago, companies that have been through this process have admitted grossly underestimating the time taken to prepare for the reforms. To properly implement an auto-enrolment scheme can take anywhere from 10 to 24 months! Appoint a person to take overall responsibility for managing the project. You may also want to take the opportunity to review your total benefits packages or align your staging dates with key dates in your calendar or a typically quiet period of the year.
3. Understand which of your workforce is affected
Where pensions auto-enrolment is concerned your workforce is split into three – eligible, entitled and non-eligible. Be sure to conduct a thorough assessment of your entire workforce so that you are clear which category each of your employees fits into and what your responsibilities to each are. The Pension Regulator (TPR) provides guides to help with this; forward planning will make the process much simpler when it comes to automatically enrolling your employees.
4. Review current pension provisions
Many companies already offer pension schemes to their employees, so it is important that you review your current pension policy. Firstly, you will need to understand how pension auto-enrolment legislation will affect employees already enrolled in any scheme. This will include checking that you are meeting the minimum requirements and making the minimum contributions. You will also need to ascertain if your current pension provider offers a suitable scheme for those who will become eligible under the new rules. If you do not already offer a company pension scheme, then you will need to act quickly to secure a suitable provider.
5. Don’t delay – communicate with staff clearly in writing
Clear and timely communication with your staff and all relevant departments is essential and will save valuable time and resources addressing unnecessary questions further down the line. Communication will need to include any new company policy and processes put in place, together with an understanding of any additional deductions that will be made to an employee’s salary. NEST, for example, has made tools and templates readily available to help employers communicate the right messages to their staff.
6. Define how the new rules will be managed
Clearly document how the following processes will be managed by your company in line with legislation: – how the audit of your workforce will be conducted to assess eligibility – changes to the thresholds – how employee opt-outs will be handled – the auto-enrolment process every three years – annual voluntary opt-in periods Don’t forget to keep detailed records to inform your payroll and pensions provider of any changes and what is required by when and by whom.
7. Register your scheme with TPR
It is essential that your pension scheme is registered with The Pension Regulator (TPR) within four months of your staging date and is re-registered every three years thereafter.
8. Gain commitment that your Payroll department and provider can deliver
Payroll is the department that will be most affected by auto-enrolment, so as well as ensuring that your payroll team is up to speed, you need to ensure that your payroll system or outsourced payroll provider is ready, and capable, of dealing with your auto-enrolment needs. If you are not absolutely confident that your payroll system/provider can support auto-enrolment, you will need to act fast to rectify the situation.
9. Retain employee communication and pension records
To ensure that you have all of the necessary information in the unfortunate event of a TPR audit, you will need to maintain a clear and accurate record of how your scheme is managed including any opt-in, joining or opt-out notices you receive from your staff as this is proof that they have exercised these rights. Should you outsource your payroll or pensions administration these rules regarding record keeping will still apply.
10. Don’t be afraid to ask for help
Whilst there are a whole raft of guides from the likes of TPR, NEST and other providers, if you unsure about something don’t be afraid to ask for help from external sources such as your payroll provider or a financial adviser. Although do be aware that as the number of businesses staging increases, the level of support is likely to reduce so don’t get caught out.