Since pension auto enrolment was first implemented in the UK in October 2012 as a government initiative to ensure workers have sufficient pension savings for their retirement,the process has been gradually rolled out and s now affecting millions of small businesses. So having been in place for quite a few years now the government is seeking to make changes to pension auto enrolment.
Whilst large and medium sized companies in the UK have been required to comply with due process otherwise are facing huge fines, the government has become increasingly concerned about the impact of pension auto enrolment on small businesses with their lack of the resources afforded to bigger companies.
The government has now pushed back the dates for increasing contributions to April 2018 and 2019 in an effort to stave off a potentially looming crisis of small businesses and pension providers being able to cope. There has been media coverage about concerns of NEST, the only workplace pension without fees being able to manage as probably the main pension provider small businesses will look to due to its affordability. In the next few years millions of small businesses need to comply.
The qualifying earnings band for auto enrolment minimum contributions will remain at £10,000 in any pay period from April 2016. The qualifying earnings band for 2016-17 will be £5,824 and £43,000 per annum.
The DWP is aiming to simply auto enrolment with some minor changes from April 2016. There will be no need to auto enrol/re enrol company directors and members of limited liability partnerships, a simplified method for an employer bringing forward its staging date and a simplified time scale for employers to notify the pension regulator that they maintain an auto enrolment pension scheme. Consultation on these changes closes in February 2016.
One thing is for sure, as with all government legislation, these will not be the last changes to be announced by the government about pension auto enrolment.
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.
The clock is ticking for all employers in the UK with pension auto enrolment. The process began in October 2012 with very large companies and from now until 2018 the process affects small businesses. The role of HR with pension auto enrolment can be quite key due to the high administrative requirements. Planning ahead is essential to ensure statutory deadlines are met.
The CIPD code of conduct states that HR professionals can not provide on pension schemes, but as HR often has an administrative role to play in most employer businesses the support with pension auto enrolment can be invaluable. An in house HR Manager or external HR consultant with auto enrolment proficiency can help streamline what may seem to be an administrative nightmare.
The key HR responsibilities in auto enrolment will include:
Identifying workers eligibility based on age and salary criteria. Workers aged 22 to retirement age and who, 2015-16 earn £10,600 are deemed to be eligible workers. Non-eligible workers are 16-22 and from state pension age to 75. Entitled workers are those who earn £5824.
Provide workers with information about auto enrolment. This will take the form of an appropriately worded letter. Additional ways to provide information can be with presentations, lunch and learn sessions, posters, email communication and face to face consultations.
Arrange deductions in pay with effect from the auto enrolment date, unless the process has been brought forward. Contributions are based on qualifying earnings. This is defined as gross earnings and can include bonus, commission, overtime, etc within a band 2015-16 will be set at £5284 and £42,385. Employers must make contributions of at least 1% for eligible and non-eligible workers, but do not have to make contributions to entitled workers.
Manage opt outs. It is illegal for an employer to encourage opt out of a pension, and currently 9/10 employees remain auto enrolled, nevertheless some employees may feel they do not want to be in a pension scheme. Workers can not opt out before they are auto enrolled, but need to be able to access an opt out form and understand the process that needs to be followed. If a worker opts out within the one month period HR must inform the scheme, stop payroll deductions and arrange for contributions to be refunded.
Inform the Pension Regulator about compliance. Within five months of the staging date HR will have to provide a compliance declaration to the Pension Regulator, this is a legal requirement. This will include contact details, business details, pension scheme information
Keep records which will include opt outs and opt in notices, enrolment and contribution information. Records have to be kept for six years except opt out notices that are kept for four years.
The process is continual. HR needs to remain vigilant to ensure that workers that become eligible due to age and salary changes are auto enrolled. Should salary changes tip the balance of a worker becoming eligible for auto enrolment, once auto enrolled they remain in the pension scheme unless they opt out.