Auto Enrolment

Auto enrolment (AE) will apply to employers after their Staging Date for eligible jobholders: aged between 16 and 74 who work in the UK for whom the employer will deduct income tax and National Insurance contributions from wages.

Minimum Contributions

Qualifying Earnings

Includes salary and wages, overtime, bonuses and commissions; including statutory payments, such as sickness, adoption, maternity and paternity pay. The minimum pension payment is 2% rising to 8% by 2018 of member qualifying earnings between £5,668 and £41,450. Qualifying earnings above £41,450 are not taken into account when working out contributions for that person.

• The employer must pay the minimum of 1% rising to 3% by 2018 but can pay more.
• The member pays the rest and will get tax relief on personal contributions.
• Salary sacrifice can be arranged.

Employer Requirements

• Maintain a database to record opt in/opt out status, eligibility status, contribution levels and to trigger three year re-enrolment,
• Create and pre-populate mandatory communications,
• Provide reporting and MI capability to provide the necessary audit trail and demonstrate compliance to The Pensions Regulator.

Steps

1. Select an Automatic Enrolment Scheme

Employers select the pension scheme they want for automatic enrolment. The scheme must allow automatic enrolment without the member having to make any choices, including a default investment.

2. Required Information To The Provider And Regulator

The employer is responsible for automatically enrolling employees into the scheme. All eligible employees must be enrolled within one month of joining. During that period the employer must:

• Provide information to the scheme including employee’s name, date of birth, National Insurance number and home addresses, and contribution levels,
• Upload the spreadsheet to the provider each month allowing correct contributions to be deducted from the company bank account,
• A statutory data protection exemption exists, so the employer does not need the jobholder’s permission to provide the information,
• Provide information to the Pensions Regulator, including details of the automatic enrolment pension scheme chosen and action taken to auto-enrol employees within four months of the staging date,
• On-going three yearly requirement to provide the Pensions Regulator with automatic enrolment information,
• Information can be provided online here

3. Provide Information to Employees When They Become Eligible

Within one month the employer must provide information to the employee on:

• A statement that the eligible jobholder has or will be automatically enrolled into a pension scheme to help save for their retirement.
• Their automatic enrolment date
• The scheme name and contact details
• The value of contributions in monetary or percentage terms
• Tax relief arrangements
• Opt-out rights and how to exercise them
• The right to opt in at least once in any 12 month period having previously opted out
• Details of automatic re-enrolment
• Where to find out about pensions and saving for retirement

Existing scheme members need to be told that their current pension arrangements meet the new requirements.

4. Collect Employee Contributions As Soon As They Are Eligible

Contributions have to be deducted on the first payday, even if the individual is not yet an active scheme member.

5. Automatically Enrol Employees Into The Automatic Enrolment Pension Scheme

The process of automatic enrolment can take up to one month, backdated to the start of the period. Providing information and automatically enrolling can be simultaneous.

6. Process Opt-Outs

Employees can’t choose to opt out of the pension until they have received the required information and been automatically enrolled. They have one month to opt out. Employers are not allowed to provide opt-out forms to their staff. The employee must obtain these from the provider or the adviser.

7. Refund Contributions Of Those Who Opt Out

In any opt out it’s likely that at least one contribution will be collected from an employee, unless the employee opts out at the first opportunity. Any employee contributions deducted will have to be refunded. Responsibility for the refund sits with the employer, who must pay money back to the jobholder and claim it from the scheme if necessary.

8. Repeat The Process Every Three Years For Those Who Opt Out

Those who opt out must be re-enrolled at three-yearly intervals. Employees can be re-enrolled three months before or after the third anniversary of the employer’s original staging date. There is a single re-enrolment date for each employer. An employee can opt in at any stage, but employers are only obliged to arrange for them to become an active member once in any 12 month period.

Qualifying Criteria for Scheme

• The minimum requirements for a defined contribution pension schemes is based on the contribution rate.
• This requires a minimum total contribution based on qualifying earnings.
• The specified amount must come from the employer.

Certification allows employers with DC schemes that calculate contributions from the first pound earned (i.e. do not use qualifying earnings in their definition of pensionable pay) to self-certify that their scheme meets the requirements.

Direct Payment Arrangements

The regulations require certain agreements to be in place:

• The employer pays contributions to the pension scheme and sets out the due dates for paying contributions.
• It is not required to be a written agreement on a single document.
• It exists where the employer makes contributions to a personal pension scheme or deducts jobholder’s contributions from pay and passes them across to the pension scheme.

Summary

The auto-enrolment process is quite straightforward and Barnes & Sherwood can assist with all elements. We can recommend an appropriate scheme is used and all future contributions are passed across to them. Choice of a scheme is up to the employer but if you would like to communicate your choice to employees, we can also arrange suitable material.