Brief Guide to Auto enrolment

YOUR DUTY AS AN EMPLOYER

Auto-enrolment and what you must do :- Auto enrolment is a legal requirement of businesses to provide a Qualifying Workplace Pension Scheme (QWPS/WPS) to eligible employees. Businesses must make a contribution towards employees’ pensions and make sure that both employee and employer pension calculations are correct.

Elements of auto enrolment

  • Staging date
  • Eligible employees
  • Calculating your contribution
  • Concept of a “waiting period”/deferment
  • Employer duties

1. Staging date : – Your staging date is the day when in law you must start complying with your new duties. Your staging date has been set by government based on information from HMRC about the number of employees in your business as of 1 April 2012. Even if this information has since changed, your staging date will remain the same.

You should receive a letter from the Pensions Regulator 12 months before your staging date, and receive a reminder three months before you staging date.

The dates shown below indicate when your WPS must be in place.

Workforce size Your staging date
160 to 249 1 Apr 2014
90 to 159 1 May 2014
62 to 89 1 Jul 2014
58 to 61 1 Aug 2014–1 Jan 2015
54 to 57 1 Mar 2015
50 to 53 1 Apr 2015
40 to 49 1 Aug 2015
30 to 39 1 Oct 2015
Less than 30 1 Jun 2015–1 Apr 2017
New employers 1 May 2017–1 Feb 2018

You can find out more about your staging date visit the Pension Regulator website: http://www.thepensionsregulator.gov.uk/employers/tools/staging-date.aspx

NB: A staging date in the payroll software for each company must be shown as part of your auto-enrolment solution. See below.

2. Eligible employees :- Note that not all employees will be eligible to join a WPS: eligibility depends on age, earnings, and whether they already pay into an existing pension scheme.

You should receive a letter from the Pensions Regulator 12 months before your staging date, and receive a reminder three months before you staging date.

The dates shown below indicate when your WPS must be in place.

Employee category* Action required
Existing members Employees already in the scheme on a qualifying basis (paying at least minimum contributions) No joining action required.
Eligible jobholders Earning at least £834 a month (£192 a week) and aged between 22 and state pension age Employers must automatically enrol these employees into a qualifying Workplace Pension Scheme.
Non-eligible jobholders Earning between £481 and £834 a month (£111 and £193 a week) and aged between 16 and state pension age These employees are not eligible for Auto Enrolment. However, they can choose to join a qualifying Workplace Pension Scheme and benefit from employer contributions.
Entitled worker Earning less than £481 a month (£111 a week) and aged between 16 and state pension age These employees are also entitled to join qualifying Workplace Pension Scheme but employers do not have to contribute to it.

* Based on the qualifying band earnings of between £5,772 and £41,865 for 2014/2015.What this means

Eligible employees must be enrolled in a QWPS and employers must contribute to the workplace pensions of eligible employees. It also means that employees will probably be required to make contributions to their own pension scheme.

3. Calculating your contribution : – The Regulator has decided on a minimum pension contribution of at 3% in total: that is 2% by the employer and 1% by the employee.

Minimum pension-scheme contribution levels have been set by the Pensions Regulator and will increase over time.

You may choose to set your contributions higher than the Government minimums.

Staging date Minimum employer contribution Minimum total contribution
Up to 30 September 2017 2% 3%
October 2017‒September 2018 3% 6%
October 2018 onwards 4% 9%

From October 2018 onwards the overall minimum to be paid into an employee’s pension will be raised to at least 9% of basic pay. This will be made up of 4% employer contribution and 5% employee contribution.

4. Concept of a “waiting period”/deferment : – An employer can choose to postpone their duty to enrol workers into an auto-enrolment scheme by up to three months. The date on which the postponement period ends is up to the employer; this is known as the “waiting period” or “deferral date”.

There are some rules attached to the “waiting period”

An employer can only use postponement once for any particular worker and only at a particular point in the employer’s auto-enrolment process, either:

  • The employer’s staging date (in relation to a worker already employed by the employer on the staging date).
  • The first day of a worker’s employment (in relation to a worker starting employment after the employer’s staging date).
  • The first day on which a worker already in employment becomes eligible for auto-enrolment (for example, because the worker reaches age 22 or earns more than the earnings trigger).

5. Employer duties

  • Determine from among your total employees:
    • Who will be auto-enrolled
    • Who will have the right to opt in
    • Who has the right to join

    Remember, there is difference between the three options. Remember also that you must circulate relevant material to staff about their right to opt-in, opt out, or join. See below.

    Employee Earnings Age 16‒21 Age 22–SPA SPA– age 74
    £10,000 + Right to opt in Auto-enrol Right to opt in
    £5,772‒£10,000 Right to opt in Right to opt in Right to opt in
    £0‒£5,771 Right to join Right to join Right to join
  • Choose a qualifying pension scheme if you don’t have already one in place.
  • Provide names and details of staff eligible for auto-enrolment to your pension provider and/or payroll administrator.
  • Provide information to staff about auto-enrolment, to include:
    • Who is eligible
    • Who is not eligible
    • The right to opt out for staff who are automatically eligible
  • Process opt-out notices and make contact with your pension scheme provider

    What if Employers do not comply with auto-enrolment?

    The law requires all employers to provide a workplace pension for certain staff. Failure to comply with the new Workplace Pension laws carries a heavy penalty of up to £2,500 per day. It is better for all employers to comply with auto-enrolment.

    Requirements

    • Work out staging date for payroll software
    • Sort out eligible employees who need to be auto-enrolled
    • Sort the remainder of employees into other categories
      • The pension scheme
      • Their right to opt in
      • Their right to join
    • Work out pension contributions

Questions to ask a software provider

Find out whether your software can identify staff that you will need to automatically enrol. If you don’t have access to the necessary software, you will need to get it. When speaking to your existing software provider or selecting new software, you should ask whether the system:

  • assesses your workforce
  • allows the use of postponement
  • calculates pension contributions
  • handles opt-in and joining
  • handles opt-out and refunds
  • supports you in generating and issuing letters to your staff
  • keeps records and provides report
  • inter-operates with some or all qualifying pension-scheme provider systems.

If you are selecting new software you should ensure that it is compatible with your existing systems.

For detailed guidance on auto enrolment please visit http://www.thepensionsregulator.gov.uk/doc-library/software-developers.aspx