The essence of Auto-Enrolment (AE) is simple: a company must automatically enrol jobholders into a qualifying pension scheme and make contributions on their behalf to that scheme. The minimum non-contributory employer rate starts at 2% but will rise to 8% over the next three years.
The scheme affects any employee who is not already in a pension scheme, who is aged between 22 and state pension age, who earns more that £10k a year for 2015-2016 and who ordinarily works in the UK.
Employees have some control however, and can opt out of the scheme – for example older employees may have already made their own pension arrangements, but there are specific criteria that must be met. In fact, Government research suggests that around 12% of eligible employees will opt out, but companies must offer the opportunity for all eligible employees who have opted-out to re-enrol every three years.
If an employee doesn’t contribute towards the pension the employer is expected to contribute the full minimum amount – up to 8% by 2018.
From 2015 onwards, small businesses will need to start staging and companies need to determine their staging date as a priority to begin effective AE planning. But businesses have different staging dates – so it is essential to find out which date applies.
While until now the Pensions Regulator has essentially staged companies by size, with the largest going first, for the SME market this model is changing slightly.
From June 2015 to May 2017, companies’ staging dates are not determined by business size but by the last two characters in their PAYE reference. From May 2017, businesses that started after April 2012 will begin to stage.
This means many small businesses – even those with just one employee – will stage before larger businesses that were founded after April 2012. The staging date is determined by the size of a company’s largest PAYE scheme on 1st April 2012, and the PAYE reference can be found on a P6/P9 coding notice or on in the white payslip booklet P30BC. This reference will enable a company to determine the staging date – and planning should start 12 months ahead.
Every employer will need to make sure that all eligible employees automatically become members of a qualifying pension scheme with a sufficient level of contribution. This means the business must:
- Complete workforce assessments
- Ensure employees are provided with a qualifying scheme
- Carry out the AE process
- Facilitate any opt outs and employee refunds
- Implement good record keeping to meet the Pension Regulator’s on-going requirements
The good news is that AE administrative processes have been streamlined. This eases some aspects of the burden but does not guarantee a smooth transition to AE. Furthermore, organisations will require support in achieving AE and there is a growing concern that ‘capacity crunch’ could result in some organisations failing to find the help and expertise required to implement AE.
Timelines for AE are still challenging and organisations need to consider a number of issues to ensure they are prepared.