Steps to pensions auto-enrolment

09 February 2014
Steps to pensions auto-enrolment

Pensions auto-enrolment affects all organisations employing staff. All employers are required to enrol and make pension contributions for staff who meet certain minimum criteria. Once enrolled, staff may choose to opt out however they must not be incentivised to do so.

Here we navigate some of the finer detail on how you can implement pensions auto-enrolment for your workforce.

Staging date
Organisations of different sizes begin pensions auto-enrolment on different dates. This is known as your 'staging date'.

Your staging date is calculated according to the number of people on your largest payroll at 1 April 2012. You can find out your staging date using this tool on the Pensions Regulator website - or see here for a calendar of staging dates from XpertHR.

The Pensions Regulator has an online tool which simply sets out the main tasks you need to complete by when.

For those who fail to comply in time, there are a number of penalties for employers including fines and legal action. Read more here.†

Understand your workforce and duties
Employers duties around auto-enrolment vary according to the age and earnings of each worker.

Below we summarise the main types of worker for auto-enrolment and what you must do for each.

  • Eligible workers:†These workers work or usually work in the UK. They are over 22 and under state pension age. They earn over £9,440 per year (this figure may change in April 2014).†Your duties: To automatically enrol into your automatic enrolment pension scheme.
  • Non-eligible workers:†These workers work or usually work in the UK. They are under 22; or over state pension age; or earn between £5,668 and £9,440 per year (subject to change in April 2014).†Your duties: To give the right to opt in to your automatic enrolment pension scheme.
  • Entitled workers:†These workers work or usually work in the UK. They earn less than £5,668 per year.†Your duties: To give the right to join any pension scheme.

To analyse your workforce, see the Pensions Regulator's employer duties tool.

Making pension scheme arrangements
Once you understand the make-up of your workforce, you are likely to have a better understanding of what type of pension scheme arrangements you will need.

For automatically enrolling staff, pension schemes must meet certain minimum criteria. The minimum criteria for these 'qualifying' schemes varies according to the type of pension scheme it is.

Some common types of pension scheme are:

  • Defined contribution (DC) schemes: these pension schemes provide benefits at retirement based on how much you invested and how your investments performed.†Examples: group stakeholder pension schemes, group personal pension plans and money purchase schemes.†Minimum criteria for use to auto-enrol staff: See this online tool†from the Pensions Regulator.†
  • Defined benefit (DB) schemes: these pension schemes provide benefits at retirement based on your service and earnings.†Examples: final salary schemes and CARE schemes.†Minimum criteria for use to auto-enrol staff: p.25-27 of detailed guidance 4 from the Pensions Regulator.†
  • Hybrid schemes: these pension schemes give a combination of benefits which have some DC and some DB elements.†Examples: nursery schemes.†Minimum criteria for use to auto-enrol staff: p.28-29 of detailed guidance 4†from the Pensions Regulator.†

If your scheme does not meet the minimum criteria, you can adapt your pension scheme to meet this for example by changing the contribution rates or what is included in pensionable pay (see p.32 of detailed guidance 4 for suggestions).†

Alternatively, you may need to source a new pension provider. See further information from the Pensions Regulator.†

Considerations for your final choice of pension scheme, contributions and postponement are likely to depend on:

  • Cost: more generous contributions will require more budget. Try budgeting for different scenarios when considering your options.
  • Change management: employers may need to consult with staff on the changes. New schemes will also need to be set up with the pensions provider and with payroll, time which will need to be factored in.
  • Administrative burden: some choices will be simpler to administrate than others.

To postpone or not to postpone?
Employers can choose to defer enrolling individual workers, new starters or the entire workforce providing that they write within one month of the date of automatic enrolment to confirm. See further guidance here.

Communicate with staff
While a certain amount of awareness raising among staff is desirable in the lead-up to auto-enrolment, some communications are a legal requirement within specific timescales. The Pensions Regulator has letter templates for:†

  • Staff already in a qualifying pension scheme
  • Eligible staff not in a qualifying pension scheme who will be automatically enrolled into a qualifying pension scheme
  • Non-eligible staff not in a qualifying pension scheme who have the right to opt into a qualifying pension scheme and receive employer contributions
  • Entitled staff not in a pension scheme who have the right to join a pension scheme (the scheme does not need to meet pensions auto-enrolment criteria).

The Regulator has produced guidance on what information each letter must include, as part of its detailed guidance.

Set up your systems
In terms of record-keeping and systems for pensions auto-enrolment, you will need to complete certain tasks on a one-off or recurrent basis. These include to:

  • Complete the required paperwork to set up any new pension schemes or amendments to your pension scheme with your provider
  • Have clear processes in place for automatically enrolling employees within the required timeframes, and for employees to opt out. For further information see here. The Pensions Regulator advises that employers do not involve themselves in administrating the opt out process.
  • Assess the age and earnings of your workforce each payroll for your staging date, to see that staff's pensions contributions satisfy the minimum legal requirements.
  • Write to staff as required, according to their change in statusKeep records of opt-outs and opt-ins. The Pensions Regulator has detailed guidance on record keeping.†
  • Register your pension scheme with the Pensions Regulator within four calendar months of your staging date. See further details here. The Pensions Regulator has a registration checklist to assist with collecting the required information.†
  • Reenrol automatically any staff who opt out every 3 years.

You can test your auto-enrolment systems by running these alongside your payroll for one or two payrolls in advance, and work out how much extra time needs to be built into payroll processes.

... and finally, implement: auto-enrol staff as part of your regular payroll processes and write to staff to confirm any change in status or postponement.

Further information
For further sources of support, see the pensions section of HRBird.

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