Auto enrolment - It is not too late for employers!
By 2018 it is expected that 1.35 million employers will be complying with the requirements to provide a workplace pension scheme.
In recent months the realisation of such significant numbers has led to press reports and concerns from within the pensions industry that there will be insufficient capacity amongst advisers to service the kind of demand anticipated in late 2014 and into 2015.
For those of you who have completed or are well underway with the automatic enrolment process then these cautionary words may not apply. However, for those who have not begun the auto enrolment process, particularly those within 12 months of your staging date, this is a timely reminder to get the ball rolling as soon as possible.
What is automatic enrolment?
As most employers will be aware, automatic enrolment is a legal requirement that applies to all employers in the UK. Employers will need to:
- Automatically enrol eligible workers into a qualifying pension scheme (unless they are already an active member of such scheme).
- Pay minimum employer contributions or provide a minimum level of benefits.
- Every three years, re-enrol eligible workers who opt out.
- Provide appropriate communications to their workers.
- Register with the Pensions Regulator and keep records to demonstrate compliance.
These obligations apply to all employers from a "staging date". Each organisation will have a staging date (or dates) determined by the number of workers.
Although compliance is a legal requirement, the auto enrolment process is not confined to legal issues; it will extend to payroll, HR and finance. Some updating of systems may be required and the journey can be complicated and time consuming. This is why the Regulator suggests that you should leave at least 12 months to prepare.
Strategic issues for employers to consider:
In broad summary, employers must decide:
- Which pension scheme should be used for compliance purposes and the level of contributions that are to be paid by both the employer and employee.
- Whether to apply 'postponement' (a statutory facility which allows the auto enrolment requirements to be put back for up to three months).
- Which payroll systems to use – including checking that the current arrangements are suitable for auto enrolment.
- How to communicate with staff. Certain information must be communicated within set timeframes.
- Whether to adopt 'contractual enrolment' for some or all workers. Contractual enrolment can mean a variety of things but here we use it as the framework which allows employees to join a pension scheme so that the employer is not required to comply with the automatic enrolment requirements. If applied correctly contractual enrolment can mean that the obligation to automatically enrol employees is "switched off". The Pensions Regulator issued updated guidance on contractual enrolment in January 2014.
What if employers get it wrong?
The automatic enrolment requirements are potentially complex but the Pensions Regulator has made it clear that it will work with employers who have misunderstood their obligations. However, deliberate disregard of the legislation can lead to significant penalties from the Pensions Regulator; potentially up to £10,000 per day and even prosecution through the Courts in the most serious cases.
Whether you like it or not, automatic enrolment is here to stay. The good news is that help is out there.
Employers should address the necessary issues as soon as practicable, preferably at least 12 months before their staging date. The Pensions Regulator has produced helpful guides (see http://www.thepensionsregulator.gov.uk/) to assist with the process and there is a growing body of advisers with experience in this field.
Of course, if you require any legal assistance on this matter please do not hesitate to contact the Wrigleys Pensions Team firstname.lastname@example.org tel: 0113 204 5732, email@example.com tel: 0113 204 5702 or firstname.lastname@example.org tel: 0113 204 5700.
The information in this article is necessarily of a general nature. Specific advice should be sought for specific situations. If you have any queries or need any legal advice please feel free to contact Wrigleys Solicitors