Workplace pensions and auto enrolment – a guide for SMEs and Recent Employers

Posted by : | 21st Oct 2013 | Employment law for HR Directors

 

Workplace Pensions a guide for SMEs and The Legal Partners
There are 7 steps you as an employer need to take to be ready for workplace pensions and auto enrolment. This Q & A on Workplace pensions and auto enrolment is an updated guide for SMEs and recent Employers whose staging dates are still to come.

 

 

 

 

 

 

 

1. Many Company staging dates have now passed and all existing firms will have enrolled their staff by April 2017. At time of writing, Companies employing up to 30 employees still have a phasing-in window which ends on 1 April 2017.  New and recent employers. If you have become an employer since 2012, your staging dates are set out below, many are set for 2017.  All new employers will have enrolled staff by February 2018. For details of past staging dates click the image below or visit. www.thepensionregulator.gov.uk/employers/staging-date-timeline.aspx

Click on the image for more details.

Staging dates for Workplace Pensions The Legal Partners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Employer contributions have been revised, below are the new requirements. These contributions are set on “qualifying” earnings of over £112 per week to an upper limit of £827 per week.
You can pay contributions at a rate that suits your business objectives, so long as you these meet least the minimum requirements set out below.

Revised contributions for Workplace Pensions what employers employees and Govt pay in The Legal Partners

 

 

 

 

 

 

The Government has announced that the staging dates for automatic enrolment may be revised to be in line with the tax year to reduce the admin burden on companies. So the dates above are proposed dates subject to Parliament’s approval. To receive our updates and keep up to speed make sure you have signed up to our Updates, the Sign Up Now button is in the column to the right or in the footer below.

For further details see http://www.thepensionsregulator.gov.uk/employers/tools/staging-date.aspx

Please note that even prior to the staging dates, employment safeguarding laws are in force for all employers.  This means that employers cannot ask applicants at interview if they intend to opt out, and  must not offer any inducements to opt out etc. The Pension regulator will write to employers 12 months and 3 months before their staging date. Employers can defer their staging date by 3 months.

2. Assess your workforce –  pension auto enrolment is dependant on age and income. Remember to keep assessing as someone not yet old enough or not yet earning the minimum salary required may in time fit the criteria and need to be auto enrolled. To minimise the number of short-term workers needing to be auto-enrolled, many employers are likely to take advantage of provisions allowing them to postpone auto-enrolment for up to three months. The link below explains what salary levels qualify for pension auto enrolment Pension Regulator Know Your Workforce site – http://www.thepensionsregulator.gov.uk/employers/know-your-workforce.aspx

3. Review your pension arrangements – there is paperwork to complete if you want an existing pension scheme to be approved. The pension scheme you use for auto enrolment must pass a ‘Quality Test’ in order to comply with new legislation. There is to be consultation on simplifying this too.

4. Communicate the changes to all your workers – The Pensions Regulator requires employees to be provided with specific information about auto enrolment, including what it means for them and their right to opt-out.

5. Automatically enrol your ‘eligible jobholders’ –  and remember that in three years you will need to re-enrol any who decide to opt out

6. Register with The Pensions Regulator and keep records – You will need to register your scheme with The Pensions Regulator.  Registering the scheme will include providing a range of evidence to the regulator as listed below:

  • Overview of the organisation
  • Details of the pensions scheme
  • The number of jobholders that have been auto enrolled

You will also have to provide evidence to the Pensions Regulator on an ongoing basis demonstrating that you have met your auto enrolment responsibilities. This evidence will include:

  • Name and Date of Birth of employees
  • Employees salary
  • Contributions made in each payment period
  • Dates of contribution
  • Auto enrolment dates
  • Details of employees who opt-out of the scheme

Failure to provide sufficient evidence will incur penalties and fines.
Be aware too that employers who fail to heed a 28 day warning notice from The Pensions Regulator risk a fine which increases each day. The fine for small employers with 1 to 4 staff who fail to comply with an “escalating penalty notice” is £50 per day and £500 per day for those with 5 to 49 staff.

7. Contribute to your workers’ pensions  – The legislation sets out minimum contribution levels at which eligible employees must be automatically enrolled. As in the diagram above, employer contributions will start at 1% of an employee’s salary. This will increase to 2 % by April 2019, then rising to 3%; dates are subject to approval by Parliament and may change.  For more details and planning advice visit http://www.thepensionsregulator.gov.uk/employers/planning-for-automatic-enrolment.aspx

Employer and Employee Contributions for pension auto enrolment

Employees must also contribute to the pension to receive the employer’s benefits. Employee contributions will start at 0.8%. This will increase to 2.4% by 2019, then rising to 4%. The Pensionable Salary for every worker between £5,668 and £41,450 per annum includes:

  • Salary
  •  Wages
  • Commission
  • Bonuses
  • Overtime
  •  Statutory sick pay
  • Statutory maternity, paternity and adoption pay. 

 

 

What to do next.

What is the impact on employers’ cashflow of Pension auto enrolment?

It is important that all businesses start planning for auto enrolment and consider how this will affect cash flow and how you will deal with it in terms of your employees eg will this be a form of pay increase?

Which employees qualify for Workplace Pension Schemes?

Eligible jobholders have to be automatically enrolled. This is a jobholder who:

  • is aged at least 22 but has not yet reached state pension age, and
  • earns above the earnings trigger for automatic enrolment, currently £833 per month: (£192 per week)These figures change year on year so do check The Pensions Regulator website here.

Also check The Pension Regulator Know Your Workforce web site  here

Non-eligible jobholders are not eligible for automatic enrolment but they must be offered the opportunity ‘opt in’ to an automatic enrolment scheme. This is a jobholder who:

  •  is aged at least 16 and under 75, and
  • is earning between £486 – £833 monthly ( £112 – £192 weekly)
  •  is aged at least 16 and under 22, or between state pension age and under 75, and earns above £9,440.

Employees earning less than £5,668 have the right to join a pension scheme but there is no obligation on employer to contribute.

What are the age limits for pension auto enrolment?

The age band for eligibility is between 22 and the state pension age, 67. Retaining the state pension age as the upper age limit gives people access to pension saving during their normal working lives and avoids automatically enrolling people for whom saving is no longer the right option. Assess your workforce to see how many are likely to opt-in to the new workplace pension scheme.

What changes do employers need to make to Employment Contracts and staff Handbooks for workplace pensions?

You will need to inform and consult with staff as every employment contract will need the clause about pensions changed according to what type of workplace pension scheme you put in place. The staff handbook will also need to refer to the pension auto-enrolment scheme you have put in place.

What payroll changes need to be made for workplace pensions?

You will need to contact your payroll provider to ensure the correct changes are made by way of salary deductions and reporting in pay slips. You should also decide if your business is going to offer salary exchange arrangements. If salary exchange is used as well that can add additional complications. Salary exchange is a mechanism to enable staff to exchange part of their gross salary in return for a non cash benefit such as employer contributions into a pension scheme. This means they get 100% of the salary exchanged going into their pension scheme because no PAYE or NICs are deducted.

 

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