As pension auto-enrolment enters a critical stage, thousands of small and micro businesses will now be thinking about their employer duties. With enforcement action for non-compliance on the rise, employers should ensure that they fully understand their new responsibilities.
What is automatic enrolment?
Under the Pensions Act 2008, employers are required to automatically enrol eligible workers into a qualifying workplace pension scheme and pay a minimum contribution into the fund. Eligible workers are those aged between 22 years and the State Pension Age who have qualifying earnings above the earnings trigger for automatic enrolment (£10,000 for 2016/17).
When do I need to act?
Every employer is allocated a ‘staging date' - this is the date when auto-enrolment duties will apply.
Deadlines for auto-enrolment have been coming into force gradually since 2012, starting with the largest businesses. Enrolment for small businesses (with five to 49 employees) and micro-enterprises (one to four employees) is still ongoing, and these groups will have a staging date between 2015 and 2018. Employers can find out their staging date on the Pension Regulator's website: http://www.thepensionsregulator.gov.uk/employers/staging-date.aspx
As part of their legal duties, employers are required to complete a Declaration of Compliance, even if they do not have any workers that are eligible for auto-enrolment. Failure to do so could result in a penalty (see below).
What are the penalties for non-compliance?
The penalties for non-compliance include a Fixed Penalty Notice of £400, and statutory notices with a prescribed daily rate of £50 to £10,000, depending on how many individuals a business employs.
The Pensions Regulator may also issue a civil penalty in cases where the employer fails to pay their contributions. These can range from £5,000 for individuals and £50,000 for an organisation. Where an employer fails to pay a penalty and remains non-compliant, the Regulator may seek criminal prosecution.
The Pensions Regulator recently revealed that enforcement action for non-compliance rose by 306% in the year to March 2016. The watchdog used its enforcement powers on a total of 8,812 occasions between April 2015 and March 2016, during which time 6,241 compliance notices were issued. Some 2,002 fixed penalty notices were also handed out.
The responsibility to enrol employees into a pension scheme lies with the employer. It is important that each employer knows when their staging date is so that they remain compliant with the relevant governing bodies.
Advice for employers
Consider the following tips to help ensure you remain compliant and avoid a potential penalty.
Know your staging date and develop a plan
Your staging date is determined by the total number of people in your largest PAYE scheme, based on HMRC's records as at 1 April 2012. You can find out your staging date by visiting www.thepensionsregulator.gov.uk/staging.
Assess your workforce
Under auto-enrolment, you will need to identify any eligible jobholders working for you. You will also need to consider whether you have an employer duty in relation to other types of workers including non-eligible jobholders and entitled workers. And don't forget to keep track of employees' ages and earnings, which may change their eligibility status over time.
Review your pension arrangements
Decide on the type of pension scheme you will offer. Do you have an existing scheme that meets (or can be changed to meet) the Government's requirements, or will you need to set up a new one? You may also want to consider whether the new NEST scheme would suit your needs.
Communicate the changes
Employers are required by law to write to all workers (except those aged under 16, or 75 and over) explaining what automatic enrolment into a workplace pension means for them.
Make sure you have a strategy in place for briefing employees and plan how you will manage any queries that arise. A range of letter templates are available on the Pensions Regulator website to help employers fulfil their legal obligations.
Automatically enrol eligible jobholders
Under the new regulations, employers are required to: provide information to the pension scheme about the eligible jobholder; give enrolment information to the eligible jobholder; and make arrangements to achieve active membership for the eligible jobholder. This should be carried out within the ‘joining window' (the six week period from the eligible jobholder's automatic enrolment date).
Complete the Declaration of Compliance and keep records
All employers will need to complete the Declaration of Compliance within five months of their staging date. The Declaration of Compliance can be completed online and is available on the Pensions Regulator website. Employers must also keep specific records about their workers and their pension scheme(s).
Contribute to your workers' pensions
From 6 April 2019 all businesses will need to contribute at least 3% on the qualifying pensionable earnings for eligible jobholders. Employers are also required to make contributions for non-eligible jobholders who choose to opt in to the pension scheme.
The responsibility lies with the employer to ensure they get matters right. More information and advice can be found on the Pension Regulator's website at www.thepensionsregulator.gov.uk.