Workplace Pension Auto-Enrolment – Overview for Small Businesses

The law on the provision of Workplace Pensions has been applied in phases since 2012. Eventually, virtually all UK employers will be legally required to automatically enrol most staff into a pension scheme and to make direct contributions.

As per our previous newsletter, all employers with fewer than thirty employees that do not qualify for an exemption will have a legal duty to have an operational Workplace Pension scheme in place. The earliest date for this could be 1st January 2016 and the latest 1st August 2017.

The Workplace Pension scheme applies to all staff who are:

aged between 16 and 74;
work in the UK; and
who have Income Tax and National Insurance contributions deducted from their pay.

Their entitlement is dependent on their age and salary. For the 2014-15 tax year the details are as follows:

Monthly gross earnings	Age
	From 16 to 21	22 to State Pension	State Pension to 74
£481 and below	Has a right to join a pension scheme
Over £481 up to £833	Has a right to opt in
Over £833	Has a right to opt in	Automatically enrol	Has a right to opt in

These different rights impact your responsibilities as an employer:

for staff that have the right to join a pension scheme, if they ask, you must provide a pension scheme for them but you do not have to pay contributions.
for staff that have the right to opt in, if they ask, you must put them in your automatic enrolment pension scheme and pay regular contributions.
for staff that must be automatically enrolled, you must put them in your automatic enrolment pension scheme and pay regular contributions.

Although staff have the right to opt out of your pension scheme, it is against the law to attempt to influence or coerce their decision.

It is a duty of the employer to pay regular contributions to pension scheme based on the total pay of each member of staff. The minimum amounts are:

Date	Employer contribution	Total contribution
Before 30/09/17	1%	2% (including 1% staff contribution)
01/10/17 — 30/09/18	2%	5% (including 3% staff contribution)
01/10/18 onwards	3%	8% (including 5% staff contribution)

As well as the contributions, there will be other costs that you will have to bear for:

the set up and ongoing administration of the pension scheme.
Implementing or upgrading the payroll software.
additional payroll processing.
professional advice.

There will also need to be an investment of time to find the best solution to suit your business.

To ensure that you are compliant, it is critical to ensure your staff records are accurate and up-to-date with their date of birth, pay, National Insurance number and contact details.

In order to administer this process, to manage your ongoing duties and to provide information to the pension provider, it is worth investing in payroll software that is auto-enrolment enabled.

Whatever you decide, remember to ensure that the payroll software or process will work with the pension scheme you choose as there will be a need to transfer data between the two.

If you already have a staff pension scheme, there is no guarantee that this will work for automatic enrolment. If this does not, you will be required to acquire a new scheme that meets the requirements of automatic enrolment.

National Employment Savings Trust (NEST) has been created by the government as an option that all employers can use for automatic enrolment. There are also a wide range of commercial alternatives.

It is important that the scheme you choose is well run, offers good value for both you and your staff and that it will work with the payroll process or software you are using. As a result, plenty of time needs to be given to make sure you make the right choice.

Your staff may well be aware of automatic enrolment. The point where you decide on the pension provider would be a good time to provide them with information.

These tasks need to be completed in advance of your Staging Date.

At this point, you must carry out a formal assessment of your staff to ascertain your duties to each of them. There is a six week limit by which time the pension provider must have all the information needed to make your staff active members of your scheme. For this, you will need to make sure that:

everyone who is eligible for automatic enrolment is enrolled into your pension scheme.
everyone who is eligible to opt into your automatic enrolment pension scheme is given the opportunity to do so.
everyone who is eligible to join a scheme is given the opportunity to do so.

To achieve this, you are required to write to each staff member after your Staging Date to inform them how automatic enrolment applies to them and to explain their rights. In addition, you must notify them that contributions will be deducted from their pay and that they have a right to opt out of your pension scheme if they wish to do so.

On the right of the staff to opt out, there are key points to be aware of:

staff who have been automatically enrolled or who have opted in have the right to opt out.
the decision to opt out must be taken freely.
staff cannot opt out until after they’ve been automatically enrolled.
the opt-out period is one month from when active membership is created, or they receive your letter with the enrolment information, whichever is latest.
staff opt out by getting an opt-out notice from the pension scheme which they then complete and give to you.
you must issue a full refund of any contributions the staff member has made within a month of receiving a valid notice.
if they decide to leave the scheme outside this period, this will be treated as ‘ceasing active membership’. Whether they get a refund of contributions will depend on the pension scheme rules.

Once the Workplace Pension has been successfully implemented, you will have ongoing automatic enrolment duties:

to keep records of how you have complied with your automatic enrolment duties, including:
- the names and addresses of those you have 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

Most of these records must be kept for six years except for opt-out notices that need to be kept for four years.

to monitor your staff ages and earnings, including new starters, to ensure that anyone who was not eligible for automatic enrolment at your Staging Date and has since become eligible is enrolled. You must enrol and write to them within six weeks from their eligibility date.
to manage opt out requests for staff that choose to opt out within one month of being enrolled. Deductions of contributions need to stop and a full refund of what has been paid to date arranged within one month of their request.

If you fail to complete your ongoing automatic enrolment duties, you could be fined.

Finally, you are required to complete a Declaration of Compliance within five months of your Staging Date. The Pension Regulator indicates that this step should take ‘a day or so’ to complete.

Again, completing your declaration is a legal duty and, if this is not done before the deadline, you could be fined.

We have posted the Pensions Regulator’s guide to the completion of the Declaration of Compliance on our website at the following link:

https://cooperfaure.co.uk/wp-content/uploads/2015/04/Declaration-of-Compliance-Guide.pdf

Although this newsletter is designed to outline the process rather than to provide editorial comment, we must say that Workplace Pension Auto-Enrolment has placed a huge burden on small businesses in terms of time, resources and money.

As a result, we would urge any employer that has the right to an exemption to strongly consider exercising it. If you meet one of the conditions and would like us to obtain an exemption for your company, please complete the form on the link below and email it back to us at admin@cooperfaure.co.uk.

https://cooperfaure.co.uk/wp-content/uploads/2015/03/AE-Exemption-Letter.doc

For those employers who are obliged to operate a pension scheme, we are in discussions with a number of providers with a view to packaging the most cost-effective solution for this.

We hope to have this in place before the summer and we will be contacting our clients on an individual basis.

In the meantime, if you would like any further information or clarification, please email us at welcome@cooperfaure.co.uk.

Workplace Pension Auto-Enrolment – Overview for Small Businesses

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