The latest Pensions Regulator’s commentary and analysis has revealed that 66% of employees are now members of a pension scheme, compared with 47% in 2012. The Pension Regulator declares auto enrolment a success. It seems the historic decline of the working population to provide for their pension has been reduced.
Compliance rates of 95% have been recorded in relation to the first group of small and micro employers to implement automatic enrolment. Almost 60% of employers who are still to go through the process are micro firms with between one and four employees, and around 950,000 employers are forecast to implement automatic enrolment within the next two years. It is therefore important that small and micro businesses engage with the process.
The report also found that around three million employees have been enrolled in a master trust, and more than 185,000 employers used the ‘Duties Checker’ tool on the Pensions Regulator’s website between October 2015 and March 2016.
However, the implementation of this statutory process by all businesses, continues to face problems as it has been reported that enforcement action taken against businesses for failing to comply is up by 300%. The Pension Regulator has escalating powers to deal with non-compliance in the form of fines that can accrue on a daily basis. The Pension Regulator can also ndertake investigations and issue compliance notices.
In the next two years 950,000 small and micro businesses will have to put a pension scheme in place. If they do not understand the process they should be seeking advice as soon as possible.
The Pension Regulator has recently published its findings in relation to small business awareness of pension auto enrolment. Worryingly the research shows that only 29% of small businesses with a staging date in 2016 know when that is.
Awareness of the auto enrolment process is highest amongst small employers compared to micro employers. The Pension Regulator is currently trying to raise awareness through TV advertising campaigns, radio and digital advertising and via social media, All employers receive a letter from the Pension Regulator twelve months before their staging date. This should be a clear prompt for that business to start preparing for the statutory process or face a large fine for non compliance. The first task should be to decide what pension scheme to choose and this will take quite a lot of time to do research. For those companies that do not wish to take up a private pension scheme the government has set up NEST which offers low cost compliance. Preparation for auto enrolment is the key to success and failing to prepare will lead to failure and high costs.
Other sources of how awareness is being raised are through professional advisors such as accountants, book keepers, pension providers, business groups and, of course, savvy HR consultants. The latter are often best placed to help small businesses with the admin burden of auto enrolment.
Information on how to comply with pension auto enrolment is readily available on the Pension Regulator website.
Unfortunately whilst many businesses do eventually get to grips with the process it appears that many forget to complete the declaration of compliance. This has to be submitted to the Pension Regulator within five months of the staging date.
Small employers on the whole believe that auto enrolment is a good thing compared to many micro employers. According to the research 41% of micro employers fear the cost of contributions, however, they need to ensure they do not coerce employees into opting out as such conduct can incur a hefty fine from the Pension Regulator. 14% of them believe they do not have to do anything to comply with this process – they will obviously have to think again if they have employees.
If a micro business does not have any employees and no one in the business has an employment contract, they may not need to comply. However, they should take advice to ensure that this is the case.
Any business that is of the opinion that compliance with auto enrolment is not needed should write to the Pension Regulator giving the reasons why and await a written response that will either confirm their assumptions or not.
The Pension Regulator has recently published it latest quarterly bulletin which shows that employers are failing to understand their automatic enrolment duties.
It seems that the Pension Regulator has found that many employers assume their duties only relate to staff who are eligible to automatically enrol according to age and salary criteria. This is incorrect as staff who have the right to join or opt in must be included in the automatic enrolment process.
The Pension Regulator found one employer who was using a master trust and had misunderstood the role of the scheme and had assumed that the scheme would be responsible for calculating contributions and making the correct staff deductions. This is a fundamental error and one that leads to a hefty fine for failing to comply correctly to automatic enrolment regulations and attracts the highest number of fines.
The Pension Regulator lists the various offences that employers can be fined for:
Information Notice – The power to demand information and documents under section 72 of the Pensions Act 2004.
Inspection – The power to inspect premises under section 74 of the Pensions Act 2004
Warrant – The power to search premises and take possession of content under section 78 of the Pensions Act 2004
Compliance Notice – A Compliance Notice under section 35 of the Pensions Act 2008 The power to remedy a contravention of one or more automatic enrolment employer duty provisions
Unpaid Contributions Notice – An Unpaid Contributions Notice under section 37 of the Pensions Act 2008 to remedy a late or non-payment due to a qualifying pension scheme
Fixed Penalty Notice – A Fixed Penalty Notice under section 40 of the Pensions Act 2008 of £400 for failure to comply with a statutory notice or some specific employer duties
Escalating Penalty Notice -An escalating penalty under section 41 of the Pensions Act 2008 of between £50 and £10,000 per day (depending on size) for failure to comply with a statutory notice
Employers who don’t understand what their compliance duties fully entail should take advice from an advisor who fully understand what needs to be done. Pension Regulator research has shown that accountants and book keepers have the lowest level of understanding out of all the available intermediaries.
When seeking advice and support, an employer should understand exactly what they are getting for their money whether it is just advice or a full automatic enrolment service. Both parties should be clear on the responsibilities for each task in the automatic enrolment process.
In 2015 1.5 small and micro sized businesses must face implementing pension auto enrolment. It seems according to the media that many employers are not ready for pension auto enrolment. A Pension Regulator report shows that half of micro businesses do not even know when they are meant to be compliant. This is despite the wealth of information out in the public domain. Many small businesses have by now been informed by letter when their staging date will be and are given ample notice to comply.
A recent article in the Independent newspaper http://www.independent.co.uk/news/business/sme/small-talk-many-employers-face-penalties-over-pensions-autoenrolment-9778756.html states that employers are sleepwalking their way past a legally binding deadline. This year 12,000 small businesses with 62-89 employees should have complied by 1 July 2014 but asked for a three month postponement which they are legally entitled to do. However, apparently many have still not complied and will face a fine by the Pension Regulator.
Research done by NOW pensions highlights that many small businesses are approaching advisers very close to their staging date or even after the staging date has passed, which is far too late. Furthermore a survey done by Sage payroll software of IFAs showed that many of their clients don’t see auto enrolment as their top priority and only 1 in 5 businesses are aware of the process. This is despite an extensive government advertising “I am in” campaign using top celebrities such as Theo Paphitis to spread the word.
Auto Enrolment is the Government’s flagship legislation to solve the country’s £28 billion pension black hole. It began in October 2012 initially with very large companies some of whom have struggled despite the resources available to help them comply such as Finance Directors and HR departments. No matter what employers and small businesses think about the process they must put a workplace pension in place or be at risk of huge fines. Unfortunately many do not have the know how, resources or time therefore early intervention is key to falling foul of the Pension Regulator.
The Pension Regulator is policing the system. Once a pension scheme is in place and auto enrolment has been undertaken an employer must confirm via a compliance tick list and submit that to the Pension Regulator within five months. If companies fail to implement the auto enrolment process they will be tracked down and dealt with very harshly. Small businesses with the many costs they face, can ill afford to shell out unnecessarily.
The Pension Regulator recommends starting the process 12 months before the staging date and this is very good advice. There is a lot of work to do – finding a provider whether that is for a private pension or NEST the government run scheme, setting up administrative processes and consulting with employees. My experience is that many small businesses and employers are burying their heads in the sand, but it is the elephant in the room and will not go away.
Employers who are looking for a simple cost effective pension scheme in order to comply with pension auto enrolment may like to consider implementing the NEST pension which has been developed by the government. NEST is ideal for small and medium sized businesses and helps employers comply with pension auto enrolment statutory legislation.
Employers may plan to implement NEST in accordance with their staging date or may bring their staging date forward as a volunteer employer. It is important to first know when the staging date is before making a decision.
The first stage of implementing a NEST pension is to contact NEST (http://www.nestpensions.org.uk) and register to obtain an account. It is important to finalise set up within 90 days of the first contact otherwise the whole process must begin again.
NEST should be provided with information about organisation – PAYE reference and contact information. There should be a main contact in the organisation but additional delegates can be given access. Worker groups and payment sources must then be added.
The workforce must be assessed according to age, salary and status. They should fall into three separate categories – eligible job holders, non-eligible job holders and entitled workers. An employer must make pension contributions for eligible and non-eligible job holders but does not have to for entitled workers.
If implementing NEST and bringing the pension auto enrolment staging date forward employees should be written to at least one month before the proposed staging date. Details on the NEST pension should be provided and as part of the pension auto enrolment process eligible workers should be offered the ability to opt out. They have one month in which to opt out. Any pension contributions that have been taken must then be refunded. A consultation meeting should be offered so employees can discuss any concerns and queries about the process.
If an employer is voluntarily entering NEST they must get signed agreement from the employees to make deductions.
It is important to get NEST permission to auto enrol early. This can be done by contacting NEST and completing a form over the phone which goes to the compliance department. It is important to do this in good time in order to prevent any delays in meeting the planned earlier staging date.
If bringing the staging date forward the Pension Regulator must be informed in writing. This can be done online using a 10 digit reference code that the employer will need to obtain or may done by letter or email. This should be done in good time and at least a month before the earlier staging date.
The information to be provided is:
- Employer name.
- Employer PAYE scheme reference(s) eg 123/4AB (you can find this on your P35 employer annual return). Please include all PAYE scheme references that you operate.
- The new (earlier) staging date chosen and your original staging date.
- Employer’s address (including postcode) and email address.
- The name of the owner or most senior accountable person at the employer (optional).
- Companies House registration number or equivalent, eg registered charity number, VAT registration number or industrial provident society number.
- A declaration from the employer that they have contacted a pension scheme and have obtained the agreement of the trustees or managers, provider, or administrator, that the scheme can be used to comply with the employer duties from the new (earlier) staging date.
- Your name.
- Your job title within your organisation.
- Your contact telephone number, email address and business address.
- Your own declaration that you are authorised to apply for a change of staging date.
Employee information should be provided to NEST. This can be done manually or via a CSV file upload. Employees will then be sent a welcome pack from NEST which will contain their ID number.
Payroll should be set up for employer and employee contributions and NEST should then be provided with an employer/employee contribution schedule.
Employers should make contributions to NEST no later than the 22nd of the month after contributions have been taken.
It’s important to allow plenty of time in planning and implementing the process. From experience this is a very heavily admin based procedure and there may be hiccups along the way.
Call 0845 241 1868 if you need assistance with implementing the NEST pension.
Pension auto enrolment is looming fast for many companies in the next few years. The Pension Regulator is taking a health interest in what certain sectors are doing to meet the challenges and avoid non-compliance. Recently the Pensions Regulator http://www.thepensionsregulator.gov.uk/ has visited firms in the recruitment sector. As a result of information gathered from the visits, the Regulator will be issuing compliance guidance tailored for the recruitment sector.
The Pension Regulator wants to ensure that organisations comply as well as wishing to establish a pro compliance culture. The regulator’s automatic enrolment compliance and enforcement team visited a number of recruitment employers where they were able to have an in-depth look at how these employers are implementing automatic enrolment.
The recruitment sector faces significant compliance challenges and the Pension Regulator decided it was particularly important to target because more than 1,000 recruitment employers are due to reach their staging date between April and July 2014.
The Pension Regulator is urging the industry to make sure their chosen pension scheme and software provider can meet their needs. Employers must start communicating with providers in good time and test payroll systems ensuring they allow enough time, before their staging date to address any complications. Employers must also plan how they will best communicate with workers and leave plenty time to accurately assess their workforce.
The Pensions Regulator recommends that employers should have providers and advisers in place at least six months before their staging date. The staging date is the date when an employer’s automatic enrolment duty is switched on.
Staging date information is available on the Pension Regulator website and employers can create their own individual plan from the the timeline. The Pension Regulator recommends that preparation is started 12-18 months before the staging date.
Pension auto enrolment is forging ahead, a government initiative that began in October 2012 with the largest companies required to implement the statutory process. Workers will automatically be enrolled into a pension scheme organised by their employer which can be a company pension scheme provided it meets certain criteria or NEST (National Earnings Saving Trust) which is scheme set up by the government.
The government has introduced pension auto enrolment to solve the pension crisis as workers in the UK are not saving enough money for their old age. With pension auto enrolment workers are automatically enrolled into a pension scheme by their employers but have the right to opt out. Every three years they will once again be auto enrolled unless they opt out. Apparently the signs are good that many employees are taking up pension auto enrolment. Currently 3% of salary is paid into each employee’s pension pot (2% contribution by the employee topped up by 1% from their employer). This will eventually rise to a maximum of 8%.
However a recent Channel 4 Dispatches programme “What’s Your Pension Really Worth?” has questioned whether if even 8% will be sufficient to build up satisfactory contributions for a person to live on. It contained interviews with older people who consider property to be a better investment, however, for the majority of employees in the UK that is an impossible dream so their only option is to pin their hopes on saving into a pension.
However it is possible that many people, even if they have saved into a pension pot, will not be able to afford to retire and will have to continue to work. Research done recently showed that 1 in 7 workers believe they will never be able to retire. Statistics produced by the Office for National Statistics’ Labour Market Survey showed that in January to March this year almost one million pensioners are still in employment. This perhaps shows that it is important to start saving for a pension early. The trouble is young people have so much else they want to spend their money on – going out, clothes, a mortage, a family, etc.
There are many barriers to creating a healthy retirement fund. Under automatic enrolment rules, companies only need to ensure that 8% is paid in from earnings between £5,668 and £41,450. No contributions need come out of earnings above this amount.
Lower charges would also help. But the millions of workers put into the Government’s flagship auto enrolment scheme, NEST, are unlikely to see fees reduced for many years. NEST was recently hit by £1.4m of fraud and has a huge loan to pay back the government.
Time will only tell whether pension auto enrolment has hit the mark with the pensions crisis, however, in its current format, the signs may not be good.
The drive to implement pension auto enrolment by the government has been in place for a little while. The inititative was lead because private pension saving declined in the UK, probably impacted by the global recession leading to a drop in people saving for their old age as well as undersaving.
The Pensions Regulator has issued 32,000 letters to organisations with staging dates from January 2013 to September 2014. From January 2014 small to medium organisations (SMEs) will be affected and will need to commence pension auto enrolment in accordance with their staging date.
The Pensions Regulator has recently completed an analysis on progress with UK employers and provided a commentary on how they are coping with the process so far.
Most employers are now aware of their obligations in respect of pension auto enrolment in that they have to automatically enrol UK workers, provide a qualifying pension scheme and make contributions however detailed knowledge of the finer points of implementation are lacking. The awareness of employers with their obligations has grown more and more perhaps due to the TV adverts promoted by the government where celebrities such as Nick Hewer, Karen Brady and Theo Paphitis are seen saying “I’m in”. Awareness has grown more with micro and small businesses but percentage wise is very low compared to awareness in large organisations who seem to be very aware of their staging date. Larger organisations are also more likely to have a more detailed knowledge of changes in pension law compared to smaller organisations.
Awareness of pension law changes has increased with intermediaries such as accountants and book keepers particularly if they advise small businesses. Awareness with pensions consultants, pensions administrators and IFAs who advise large organisations close to their staging date is very high.
Over 3/4 of larger employers think that pension auto enrolment is a good idea in principle. Whilst many large organisations feel they will be able to cope with the administrative burden of pension auto enrolment only 48% of micro businesses have indicated confidence in being able to do so.
Most large organisations said they would not leave things to the last minute to implement pension auto enrolment compared to 40% of small and 66% of micro businesses who said they would.
50% of large organisations and 65% of medium organisations felt it would be easy to cope with the changes compared to 57% of small and 42% of micro businesses. Large employers have tended to be the most prepared for the changes, with most having started some form of preparation, and with more now in the implementation stage than in spring 2012. Most large employers were also confident that their organisation would have done everything it needed to by the deadline. Only 18% of micro employers have begun preparation and lack confidence that everything will be done by their deadline.
The main concern about pension auto enrolment for SMEs is the cost of implementation. Micro employers are also more concerned about the administration and communication to workers.
Many large organisations have already consulted with an external advisor to seek advice whereas many SMES plan to gain external support in future. Many pension consultants are already getting actively involved in providing technical advice to their clients, but it is advice rather than hands on support with the expectation that their clients will undertake many of the admin activities themselves. Many book keepers and accountants are undecided on the type of support they will provide to their clients. Potentially many small and micro businesses may be lacking in the support available to them.
Many employers felt the penalty for non-compliance would be a fixed penalty or fine. The Pensions Regulator has already opened 89 investigations into non-compliance with large organisations who have passed their staging date and took no action. The investigations have focused on employer readiness and helping employers become compliant. No one has yet been fined for not complying however, this may change in 2014 when the huge number of SMEs will be affected by the change in pension law.
To conclude it would seem that although larger organisations seem to have everything in hand, potentially SMEs may struggle to cope with the necessary burden and should seek help well in advance of their staging date if they are unsure of what to do so they avoid any investigation by the Pension Regulator for non-compliance.
For more information on the Pension Regulator’s analysis: http://www.thepensionsregulator.gov.uk/docs/automatic-enrolment-commentary-analysis-2013.pdf
In accordance with the Pensions Act 2008 from October 2012 UK companies must have a pension in place into which employees will be automatically enrolled. This could be an existing pension eg group personal pension or stakeholder pension so long as it meets the qualifying criteria. However if a company does not have a pension scheme in place or do not introduce one then they can adopt the government’s scheme, National Employment Savings Trust (NEST). There is no obligation to offer the NEST scheme to employees. Although its structure may suit some companies, it may not be suitable to others. However, it could be possible to offer a company pension scheme to some employees and NEST to others. NEST is designed to simple and easy to use. The government has decided to introduce this to make it easier for people to save for their retirement as many are not currently doing so and to alleviate the ticking time bomb of the pension burden as the population grows older.
Auto-enrolment for pensions will impact on all employers between 2012 and 2016 depending on the size of the company and the number of employees, which will be established from PAYE records. A company pension scheme must be compliant with government rules and companies must pay in contributions from both the company and their employees. UK employers will be required to contribute a minimum percentage of each employee’s eligible earnings into a pension. Employees will also need to pay a personal contribution into a pension. The total minimum percentage contribution required of both employer and employee is being phased in. In 2012 the minimum percentage is 2% rising to 8% by 2018. Contributions can exceed this amount however.
Employers have to automatically enrol workers who:
Are not already in a qualifying workplace pension scheme;
Are at least 22 years old;
Are below state pension age;
Earn more than £8,105 a year; and
Work or ordinarily work in the UK (under their contract)
These are eligible workers. There are also non-eligible workers who fall outside the age range of 22-74 earning above £5,564 and below £8,105, they have the right to opt in and entitled workers who earn below £5,564 per year who have the right to join the pension scheme. It is important to identify what category the employees fall into. Employees are able to opt out of the scheme within one month of membership. Any contributions they have made in that time must be refunded. Employees must be identified for auto enrolment once every three years.
It is important to prepare early in good time for the appropriate staging date. Companies need to nominate a key contact in the company who will be responsible for pension auto enrolment. Once the assessment stage has been completed it is important to communicate the changes to the workforce with the correct template documentation. Once implemented pension records need to be keep for at least six years.
It is against the law to coerce employees into opting out of pension auto enrolment. For companies who fail to comply with the statutory legislation the Pension Regulator has the power to impose huge fines.