Workplace Pensions and Auto Enrolment
This employment guide sets out your legal obligation as an employer to provide your staff with a workplace pension and the requirement to auto enrol your staff.
New laws came into force in 2012 which mean that you must provide workplace pension schemes for your workers. This is being phased in but by 2018 every employer in the UK will have to provide a suitable workplace pension scheme and automatically enrol many of their workers.
You cannot ‘contract out’ of the new regime. Nor can you limit or exclude any of the new duties or obligations imposed on you. Once you reach your ‘staging date’ (see below) it is the law and you must comply with your new duties and obligations.
You must be able to prove that you have complied with the legislation.
When do the new employer duties apply?
The Pensions Regulator (the government body that enforces the new rules) has published a timetable setting out the staging dates that will apply for employers. The staging date allocated to your organisation will depend on its size.
Your new duties will apply with effect from the staging date assigned to you. Larger employers are being staged first, with small and new employers staging later. By 1 February 2018, every employer will have reached their staging date.
What is a staging date?
Your staging date is the specific date allocated to you by the Pensions Regulator on which, by law, you will have to comply with your new employer duties and obligations.
Where can I find out when my staging date is?
You can find your staging date by visiting the Pensions Regulator’s website You will need your PAYE reference number.
Approximately 12 months before your staging date, you will also receive a letter from the Pensions Regulator providing details of your staging date together with other information. If you are within 12 months of your staging date and cannot find the letter you can ask the Pensions Regulator for a copy.
Who must be auto enrolled?
Auto enrolment is the process by which you ‘sign up’ eligible employees for the workplace pensions. It is called ‘auto enrolment’ because, for your employees, it is automatic. You must enrol them in the scheme. They do not have to do anything.
Auto enrolment applies to a specific category of jobholder known as an eligible jobholder. An eligible jobholder is someone who ordinarily works in the UK under a contract of employment; who is aged between 22 and state pension age; and earns more than the ‘earnings trigger’. Our advisors will be able to tell you what the current earnings trigger is – just give us a call on 01455 444 222 or contact us.
When must an eligible jobholder be auto enrolled?
As a general rule, you are required to auto enrol an eligible jobholder in an automatic enrolment scheme, and provide him or her with specific information about the scheme, within one month from the jobholder’s automatic enrolment date.
For every jobholder, you will need to establish the correct automatic enrolment date (AED). In some cases this will simply be the date on which a new jobholder starts employment (or your staging date if a jobholder is employed on that date).
However, there will be many cases where a worker's AED will be later than this. For example, if you use a monthly pay reference period and a new joiner starts work fairly late in the month, he or she may not receive earnings that exceed the earnings trigger in the initial pay reference period. In that case, the jobholder's AED will be the first day of the following pay reference period. Low earners may not count as eligible jobholders until their second pay reference period.
You can use a postponement period to delay the jobholder's AED by up to three months – see below.
What type of pension scheme must jobholders be auto enrolled into?
An eligible jobholder must be auto enrolled into an automatic enrolment scheme. This is a scheme that meets certain quality tests. There are also additional criteria, including that the scheme rules cannot contain any restriction on admission (for example, by reference to a worker’s length of service or state of health).
Options for providing an auto enrolment scheme
You will have several options for choosing a qualifying pension scheme to comply with your new employer duties.
In practice, the choice of scheme is very likely to depend on your existing pension scheme, you will need to consider who you are going to use as your pension provider.
Paying minimum contributions
You will be required to pay minimum contributions in respect of your eligible jobholders who have been auto enrolled – and also for non-eligible jobholders who have opted into the scheme. Minimum contributions are set by the government and may be raised each year.
Our advisors will be able to tell you what the contributions are that you must pay – just give us a call on 01455 444 222 or contact us.
Ongoing employer duties
Once you have auto enrolled an eligible jobholder, you must not do anything that may be seen as an action that could result in the jobholder ceasing to be a member of the pension scheme.
Providing information to members and schemes
The law requires that you must follow a process in auto enrolling eligible jobholders. You also have duties to provide them with certain information about auto enrolment and their right to opt out.
As you will be passing personal data to your auto enrolment scheme, you must ensure that you get permission from employees to do this.
Using a postponement period
You can use an optional waiting period for up to three months before auto enrolling an eligible jobholder. This is known as postponement.
Postponement periods are likely to be widely used, not least because they will avoid the need to auto enrol individuals who an employer considers are likely to leave service after a very short period. If you want advice on this please get in touch with us. Call 01455 444 222 or contact us.
Opting-out and re-joining
An eligible jobholder must be auto enrolled within six weeks of his or her AED. Once auto enrolled, the jobholder has the right to opt out of the scheme within one month. A jobholder who wants to opt out must do so by sending you a valid opt out notice. The law requires that a jobholder must obtain an opt out notice from the auto enrolment scheme of which he or she is a member.
Right to opt in or join
Workers who are not eligible for auto enrolment because they do not satisfy the eligibility criteria in some way have a statutory right to opt in or join a workplace pension scheme in some circumstances. The two categories of individual that are relevant are:
This is either:
- A worker who is aged between 16 and 75 and has earnings exceeding the qualifying earnings threshold.
- A worker who is aged between 16 and 21 or is aged between state pension age and 75 with qualifying earnings above the earnings trigger
- This is a worker who is aged between 16 and 74 who is earning less than the qualifying earnings.
Our advisors will be able to tell you what the current earnings thresholds and other limits are which apply to the above – just give us a call on 01455 444 222 or contact us.
Every three years you must auto enrol all eligible jobholders who were initially auto enrolled but opted out. They must be told that they have been re-enrolled and given the chance to opt out once again.
In most cases, you will have a six-month ‘window’ around the three-year anniversary of your original staging date to re-enrol your eligible jobholders. Again, there are statutory requirements about specific information that must be given to a jobholder who has been re-enrolled.
You must keep detailed records proving your compliance with your new duties. You must keep the following records for six years:
- Details of the automatic enrolment scheme used to comply with your new duties.
- Name, National Insurance number, date of birth and auto enrolment date of all jobholders who have been auto enrolled.
- A copy of the statutory notice providing jobholders with details of their entitlement.
- Copies of all opt out, opt in and joining notices received.
- Evidence of jobholders’ earnings and contributions.
- Dates on which employer contributions in respect of a jobholder were paid to the pension scheme.
Penalties for failing to comply with your duties
If you do not comply with the auto enrolment regime, the Pensions Regulator may intervene and require certain steps to be taken or levy financial penalties.
In the first instance, the Pensions Regulator can issue a formal compliance notice which tells you what you must do to comply with the law. If you do not do that by the date set in the notice, fixed penalties can be imposed starting at £400.
In the case of serious or persistent breaches, the Pensions Regulator can order escalating penalties. These range from £50 a day for employers with one to four workers up to £10,000 a day for those with 500 or more workers.
One slight relief from the employer’s perspective is that workers will not be able to bring claims in employment tribunals about an employer's failure to comply with the auto enrolment and minimum contribution duties. However, a claim by an employee that he or she has been unfairly dismissed in consequence of an employer's non-compliance, or a claim by a worker that he or she has suffered detriment arising from breach of the employer duties, could end up in the employment tribunal.
Auto enrolment checklist
Here is a brief list of the things you should do to comply with the law.
Confirm your staging date. How many of the things in the list below you should have done already will depend upon your staging date.
Assess your workforce to determine which categories of individuals count as ‘workers’ and which of these qualify as eligible jobholders, non-eligible jobholders and entitled workers.
Review your existing pension scheme and decide whether all jobholders will be enrolled in the same scheme or whether you will use more than one scheme. If an existing scheme is to be used for some or all jobholders, review whether it counts as a ‘qualifying scheme’ under the legislation and consider whether any rule amendments are required. If you do not have an existing pension scheme, there are a number of pension schemes you can consider using as your chosen workplace pension scheme.
Decide whether to use a postponement period and, if so, which categories of jobholder it should apply to.
Prepare all the necessary standard documents, including opt out and opt in member notices, standard auto enrolment, opt in and joining information notices (and postponement period notices if appropriate).
Contracts of employment
Review your employees’ contracts of employment. Consider whether contractual data protection provisions need updating.
Set up auto enrolment payroll processes. These should include arrangements for paying employer contributions for each jobholder, deduction of contributions from jobholders' earnings and paying refunds for those who opt out.
Ensure staff are aware of prohibited recruitment conduct and prohibitions on inducements to opt out.
Ensure proper record-keeping procedures are put in place.
Register with the Pensions Regulator within five months of your staging date.
Set up re-enrolment processes to start with the third anniversary of the first auto enrolment dates.
Getting it right
The penalties for failing to implement workplace pensions and auto enrolment legislation correctly can be substantial.
HR:4UK can take the complexity out of pensions and auto enrolment by:
- Acting as a ‘second contact’ with the Pensions Regulator. This means that you won’t miss any deadlines because we’ll be there to prompt you and support you through the whole process.
Issuing all the statutory notices to all your employees.
- Keeping a record of all the statutory notices as required by law and updating your contracts of employment and employee handbooks as required by these changes.
- Administering your pension scheme once you have reached your staging date (if we manage your payroll).
- Issuing the necessary legal declarations to the Pensions Regulator for you.
For further help and advice, speak to one of our advisors by calling 01455 444222 or complete our online enquiry click here and an advisor will contact you shortly.