Auto Enrolment is just around the corner for a significant number of businesses and as with most new legislation coming into effect – the rules are complicated. It is essential that employers understand the new process and are fully compliant as the Pension’s Regulator has already started to fine businesses, with a record number of investigations being implemented last month.
The Basics
- All employers must auto enrollment employees into a qualifying scheme – there are no exemptions.
- Eligible employees who are not currently in a qualifying scheme, are aged 22 to State Pension Age, working in the UK and earning more than the ‘earnings trigger’ in their par reference period. The ‘earnings trigger’ is £192 weekly, £833 monthly and £10,000 annually (2014/15).
- Employees must be auto enrolled into a qualifying scheme within six weeks of: the employer’s staging date, start date of the employee, attaining the age of 22 and exceeding the ‘earnings trigger.
- The new rules include business owners that employ their spouse.
- Where no qualifying scheme exists, or it will not allow auto enrollment, the employer must set up an alternative for auto enrollment.
- An employer can use the optional waiting period of three months rather than the default six weeks before auto enrolling employees.
Remaining Staging Dates:
- Employers with 50-61 staff 01/08/14 to 01/04/15
- Employers with 30-49 staff 01/08/15 to 01/10/15
- Employers with fewer than 30 staff 01/11/15 to 01/04/17
Opting Out
- An Employer cannot advise employees to opt out.
- Eligible workers can choose to opt out:
- i) those with enhanced/fixed protection
- ii) people who cannot afford to contribute.
- Employees who choose to opt out must automatically be re-enrolled every three years when they can choose to opt out again.
- There is some flexibility around the timing of re-enrolment of employees. This allows employers a window of three months before and after the scheduled date.
- If an employee volunteers to re-join, the employer must allow this at least once a year.
- If an employee has previously registered for enhanced or fixed protection, they must opt out initially, and subsequently every three years or they risk losing the protection.
Penalties
The Pension Regulator will have the ability to impose penalty notices if an employer does not comply with their new duties:
- Fixed penalty of £400 where an employer fails to respond to a warning notice from the pension regulator.
- An escalating penalty of £50 to £10,000 a day (depending on the size of the employer). For example, if the employer fails to pay contributions on time.
- Fixed penalty of £1,000 to £5,000 for prohibited recruitment conduct, for example where an employer screens job applicants for their intention to join the pension scheme.
Auto Enrolment for Employers
Employers need to consider the following key points:
- What is your staging date?
- Can you use an existing scheme?
- Can you amend an existing scheme to meet qualifying criteria?
- Should I set up a new scheme which meets the qualifying criteria; and/or use NEST/The People’s Pension/Now: Pensions – for some or all of your employees?
- Should I offer a combination of options for different areas of the workforce?
Summary of categories of workers
| Age (inclusive) to earnings | 16-21 | 22- State Pension Age | State Pension Age To 75 |
| Over ‘earnings trigger’ for automatic enrolment (£10,000) | Non eligible jobholder | Eligible jobholder | Non eligible jobholder |
| Between £5,772 and £10,000 | Non-eligible jobholder | ||
| Under lower earnings threshold (£5,772) | Entitled worker | ||
Summary of employer obligations
| Eligible jobholders | Non eligible jobholders | Entitled workers can ask to join a pension scheme | |
| Auto enrol | y | n | n |
| Re enrol | y | n | n |
| Opt in | y | y | y |
| Mandatory employer contributions | y | y | n |
| Information obligations | y | y | y |
Minimum contributions of “Banded Earnings”
| Employer | Employee | Tax Relief | |
| Oct 2012 – Sept 2017 | 1% | 0.8% | 0.2% |
| Oct 2017 – Sept 2018 | 2% | 2.4% | 0.6% |
| From Oct 2018 | 3% | 4% | 1% |
