Auto Enrolment Pensions for Employers: What You Need to Know
Do you know what pension auto-enrolment is? If you are an employer in the UK, chances are you know. Being a business employer, here’s what you should know about your options and challenges to offer an auto-enrolment pension scheme to your workers.
What is Auto-Enrolment?
According to the Pensions Act 2008, all employers in the UK must evaluate their ‘workers’ and if they fulfil certain criteria, they must be enrolled into a pension scheme and minimum contributions are to to be paid in. Since 1 February 2018, auto-enrolment has become mandatory for all employers, including those having only one employee.
Within one month of being auto-enrolled into a pension scheme, the worker may choose to opt out. However, as an employer, it is your responsibility to re-enrol all eligible workers who have withdrawn from the scheme every 3 years.
Types of Workers Entitled for Automatic Enrolment
As an employer, you should know which type of employees fall under the purview of auto-enrolment.
- Jobholders: This category includes all workers aged between 16 and 21 or between State Pension Age (SPA) and 74 years. They should be earning £10,000 p.a. or aged between 16 and 74 years; earning above £6,032 p.a. for the 2018/19 tax year but below £10,000 p.a. The jobholders have the right to join a pension scheme where minimum contributions to be paid in.
- Eligible Jobholders: This includes employees aged between 22 and SPA and earning a salary more than the annual income trigger for auto-enrolment which is £10,000 p.a. currently. Employers must auto-enrol them into a pension scheme to which minimum contributions are paid.
- Entitled Workers: The category includes workers aged between 16 and 74 years and earning below £6,032 p.a. for the 2018/19 tax year. They have the right to opt in a pension scheme but it is not obligatory to make minimum contributions.
In this regard, it is important to know that the minimum contribution rate for auto-enrolment pension schemes will rise with effect from 6 April 2019. This will be applicable for both the employer and employees. Refer the chart below to understand the current rate prevalent and the new hike to be implemented.
|Date||Minimum Contribution (Employer)||Minimum Contribution (Employee)||Total Minimum Contribution|
|Current rate: 6 April 2018 to 5 April 2019||2%||3%||5%|
|New rate: 6 April 2019 onwards||3%||5%||8%|
Auto-Enrolment and Duties of an Employer
As auto-enrolment becomes mandatory for all employers having business in the UK, it is crucial to understand what their duties and responsibilities are. Let’s have a look.
A key step to prepare for auto-enrolment is having the right payroll software by the beginning of the tax year. Avoid pitfalls in choosing payroll software for auto-enrolment and know precisely what the service provider has to offer. Do not refrain from seeking expert pension advice. Professional consultants can assist employers with different options of pension schemes available, helping them make the right decision.
To prepare for the staging date, it is also vital to have comprehensive employee information. The employer should assess the workforce to determine the different categories that the workers belong to – eligible jobholders, job holders, and entitled workers. This must be monitored at each pay period.
Next, the employer has to choose the right pension provider for the company and register with the same. Once registration is done, the pension scheme can be set up in the payroll software.
An enterprise’s staging date is one when the employer must start the auto-enrolment process and provide a workplace pension scheme to eligible workers. The date is determined on the basis of the number of employees an organisation had as of April 2012. You can find the staging date on the Pension Regulator website by providing employer PAYE number.
When it comes to auto-enrolment, communication is one of the most integral and time-consuming employer responsibilities. It is your duty to notify each of your staff members individually in writing, mentioning their entitlements based on their employee category. The letter must also state that they have the option to opt out within the given period. It must also mention the minimum contribution percentage as applicable depending on the employee category they fall into.
As an employer, it is your responsibility to ensure that the right information reaches the right staff member and at the right time.
An auto-enrolled worker gets a 30 day opt-out time period during which they can choose to withdraw from the scheme and have a full refund of all deductions made. According to the scheme rules, if an employee wants to opt out after the specified period, they will cease to have an active membership. For an employer, it is illegal to advice a worker to opt out from the scheme.
It is mandatory for every employer to submit a Declaration of Compliance within 5 months of their respective staging date. This allows The Pension Regulator to closely monitor whether the employers are complying with their duties; non-compliance resulting in penalties by TPR.
If a certain employer is found to not fulfilling their duties, the regulatory body will first send them a compliance notice, stating certain tasks that the employer must fulfil within a specific time to avoid penalty.
Challenges of Auto-Enrolment Pensions for Employers
The government’s auto-enrolment initiative has proven to be quite challenging for most organisations, big or small. Discussed here are the main complications that many companies face as their staging date approaches.
- Choosing the right pension provider under the auto-enrolment scheme can be tricky for employers. Many pension providers do not offer auto-enrolment, while others may allow upgrading to comply with the latest regulations. In most cases, they refuse considering the number of workers, time to staging date and higher premium levels.
- Educating your workers on auto-enrolment and ensuring that your statutory letters to them are compliant and on time is another key challenge that employers face.
- Defining your company’s pensionable income is crucial; however, changing to auto-enrolment can make it complicated if you do not seek expert advice.
- Upgrading your payroll system to auto-enrolment or implementing new software is another big challenge because it should be able to support all opt-ins, opt-outs, re-enrolment, and postponement.
To have comprehensive support for employer auto-enrolment, get professional advice from an expert today.