What is automatic enrolment?
The law on workplace pensions has changed. Every employer with at least one member of staff now has new duties, including enrolling those who are eligible into a workplace pension scheme and contributing towards it. This is called automatic enrolment.
It is called automatic enrolment because it is automatic for you are an employee – you don’t have to do anything to be enrolled into your pension scheme, but it is not automatic for the employer. He or she will need to take steps to make sure that eligible staff are enrolled into a pension scheme. Even if they already pay contributions into a pension scheme for their staff, they still need to check if it is suitable for automatic enrolment.
- Setting up a pension scheme with a suitable provider
- Enrolling employees into the pension scheme. Contributions to the scheme come from three places. Deductions from employees’ pay, the employer will also make contributions and the government will contribute via tax relief. Employers will have to make sure that the level of contributions is correct.
- Once the employer has completed steps 1-10 (see below), they will need to let the Pension Regulator know how they’ve met their automatic enrolment duties by completing a declaration of compliance.
- Ideally, up to 12 months preparation time should be allowed. Remember, automatic enrolment is a legal duty and if not done, fines will be levied.
The 10 steps an employer needs to complete:
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1. Know your staging date
- You can find this out by going to http://www.thepensionsregulator.gov.uk/employers/know-your-staging-date.aspx and entering your PAYE scheme reference
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2. Provide a point of contact
- Ideally this should be done approximately 12 months before your staging date and can either be a responsible member of your staff or your agent if you use a payroll bureau or your accountant
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3. Check who you need to enrol
- This should be done approximately 9 months before the staging date. You must assess your staff for automatic enrolment based on their ages and how much they earn (all staff not over retirement age and earning more than £192 per week must be enrolled)
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4. Create an action plan
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5. Getting ready
- This involves working out your costs, checking your records and payroll process and choosing a pension scheme (or check if your existing one is suitable, as many are not)
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6. Work out your level of contribution
- One of your automatic enrolment duties will be to pay a regular contribution into your staff pension scheme. This will be phased in as follows: Before 30/09/17 1% (+1% staff contribution), Up to 30/09/18 2% (+3% staff contribution), After 01/10/17 3% (+5% staff contribution)
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7. Review your staff records and payroll processes
- It is essential that you ensure your staff records – including their dates of birth, salaries, NI numbers and contact details – are correct and up to date. You’ll need to keep track of your staff details, as well as the amounts paid into the scheme each pay period, once you’ve automatically enrolled them.
- If you haven’t already done so, buy some payroll software that fully supports automatic enrolment, including the ability to generate a report or file in the correct format for your pension scheme provider’s system. Ideally this should be in place six months before your staging date
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8. Choose a pension scheme (or check your existing one)
- This can take several months, so allow plenty of time
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9. The staging date – Assess and enrol your staff
- With everything in place, you must now carry out a formal assessment of your staff to work out your duties to each of them. Once you’ve done this, you must ensure your staff will be automatically enrolled by sending your pension provider the information it needs to make them active members of your scheme. You have six weeks from your staging date to do this.
- You’ll need to make sure that everyone who is eligible for automatic enrolment is enrolled into your pension scheme and that everyone who is eligible to join a scheme is given the opportunity to do so. Plus you are legally obliged to write to every member of your staff explaining exactly what is happening, especially their level of contribution
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10. Complete your declaration of compliance
YOUR ONGOING AUTOMATIC ENROLMENT DUTIES
Automatic enrolment is an ongoing responsibility, so you must monitor the scheme to ensure that it is complaint with the rules and one of those key responsibilities is to keep records, which must include:
- the names and addresses of those you’ve enrolled
- records that show when contributions were paid
- any opt-in and opt-out requests
- your pension scheme reference or registry number
- any information you send to your pension provider
- records must be kept for six years and opt-out notices for four years
So there you have it folks, it may appear to be a bureaucratic nightmare but it needn’t be. The eligible scheme provider/pension company you chose to administer the scheme will have geared up for this and can be an extremely useful source of advice. But remember having the right payroll software is pretty much essential and your staff records must be constantly kept up to date.
If any of you would like more detailed information on any aspect of UK Tax Returns, send me an e-mail and I’ll be pleased to advise further.
David Jones is the Senior Partner and Founder of Morgan Jones & Company. Born in Liverpool and an Accountancy graduate of the University of Wolverhampton, David spent twenty years working for the Customs & Excise in London then Shrewsbury before starting his own business. David's depth of knowledge of the UK tax system and his ability to communicate this learning has seen Morgan Jones & Company grow into Shropshire's most respected Accountancy Practice.