Workplace pensions – your responsibility as an employer

Under the Pensions Act 2008, every employer in the UK must put certain employees into a workplace pension scheme and contribute towards it. This is called ‘automatic enrolment’, or ‘auto enrolment’. If you employ at least one person, you are an employer, and you have certain legal duties.

Your legal duties for automatic enrolment begin on the day your first employee started working for you – this is called your ‘duties start date’.

There are tasks that you’ll need to carry out straight away to meet your duties on time.

First, you’ll need to assess your employees to see if they meet the age and earnings criteria to be put into a pension scheme on your duties start date. If they did you must put them into a scheme and pay into it. Even if you don’t have any employees to put into a scheme you will still have duties.

Then you must write to all your employees, within six weeks of your duties start date, to tell them how automatic enrolment applies to them. If you’re more than six weeks after your duties start date you’ll need to do this straight away.

Finally, you must complete a declaration of compliance online to tell us how you’ve met your legal duties. You must do this within five months of your duties start date.

Are you eligible?

Auto enrolment duties don’t apply when an organisation, business or individual are not considered an employer.

You are still an employer if you employ someone who doesn’t meet the criteria to be put into a pension scheme.

You won’t have any duties if you meet one of the following criteria:

• you’re a sole director of an organisation or business with no other employees
• your organisation or business has a number of directors, none of whom has an employment contract, with no other employees
• your organisation or business has a number of directors, only one of whom has an employment contract, with no other employees

If automatic enrolment duties don’t apply to you and you have received a letter from The Pensions Regulator, you will need to inform them that you’re not an employer.

If your circumstances change so that auto enrolment duties apply to you, you’ll need The Pensions Regulator of this as soon as possible.

You’ll need your PAYE reference and either your letter code or your accounts office reference number to get started.

Choose a Pension provider

You’ll need to choose a pension scheme that is set up for automatic enrolment. You and your employees will pay money into this scheme to help your employees save for their retirement.

There are many providers offering pension schemes suitable for auto enrolment.

We, at Competex, are not qualified to offer advice regarding a suitable pension scheme. If you require assistance in choosing a suitable scheme you should contact an IFA.

Please also note that if you do not have any eligible jobholders there is no obligation to set up a pension scheme until a non-eligible or entitled jobholder requests to join the pension scheme. However, you must write to these employees detailing their rights towards auto enrolment and complete the declaration of compliance.

What you need to do at your duties start date

Assess workers

There are different categories of workers for auto enrolment. Some employees must be automatically enrolled into your chosen scheme, whilst others may have the right to opt in or join the scheme. This is determined by the age and level of earnings of each employee. An assessment will need to be made each time an employee is paid to determine which category they are in.

• Eligible Jobholders are aged between 22 and State Pension Age and earning over £10,000 per year, or £833 per month or, £192 per week. These workers must be automatically enrolled.
• Non-Eligible Jobholders are either aged between 16 and 74 and earning between £6,240 and up to £10,000 per annum or aged between 16 – 21 or above State Pension Age (up to 74) and earning above £10,000 per annum. These workers are not automatically enrolled, but have the right to opt in to the pension scheme if they choose. If they do choose to opt in the employer must pay contributions into the scheme for them.
• Entitled workers are aged between 16 and 74 and earning below £6,240 per annum. These workers must be offered the opportunity to join a workplace pension, but the employer is not obliged to make contributions.

Decide if you want to use Postponement

You can delay ‘assessing’ your employees for up to three months. This is known as ‘postponement’.

Postponement does not change your duties start date, but simply the day you assess your employees age and earnings. If you use postponement you must write to your employees to tell them what you are doing.

Calculate, deduct and make pension contributions

The amount you and your employees pay into your pension scheme may vary depending on which pension scheme you choose. However, by law, you and your employees have to pay a minimum amount into your scheme.

This is set at 8% of your employees qualifying earnings. You, the employer, must pay at least 3% of this, but you can choose to pay more.

Communicate with your employees

Within 6 weeks of enrolling your employees, it is your legal duty to write to all your employees individually to explain how automatic enrolment applies to them.

Different letters will be required for each category of worker and also for those who have been postponed.

If an employee wishes to opt out, they will need to complete an opt out notice, which will be provided directly to the employee by the pension scheme provider. Employees who wish to opt out must do so within either one month after they have been enrolled, or one month after they have received their enrolment information (known as the opt out period). An opt out notice cannot be submitted prior to the jobholder becoming an active member of the pension scheme.

You must not actively encourage your employees to opt out and any decision to opt out must be taken freely without influence from the employer. Please note that all eligible jobholders will need to be automatically enrolled before they can choose to opt out.

If contributions have been made into a pension scheme and the worker opts out within the required timeframe the employee will need to be reimbursed for the contributions in the next pay period, and you will need to reclaim both the employee’s and the employer’s contribution from the pension company

Opt out notices must be kept by the employer for 4 years.

Complete the Declaration of Compliance with The Pensions Regulator

Within 5 months of your duties start date you must confirm to The Pensions Regulator that you have complied with your Auto Enrolment duties. You must complete your declaration of compliance even if you don’t have anyone to enrol. Your declaration of compliance must be completed online via the The Pensions Regulator website and you are liable to be fined if you don’t complete it within the statutory timescale.

Continually assess your employees

Before each payday you will need to re-assess your workforce to see if there are any changes which might affect Auto Enrolment, for example taking on a new employee, increased earnings which activate Auto Enrolment, or a change in age so a worker falls into a different category. You’ll also need to deal with requests to join and leave the pension scheme.

Re-enrolment and re-declaration

Re-enrolment is a procedure which takes place every 3 years after your duties start date and applies to employees who have previously opted out. You may choose a re-enrolment date, within a 3 month window either side of the third anniversary of your duties start date, and all eligible jobholders who are not already enrolled in your pension scheme (because they chose to opt out or cease membership) must be re-enrolled into your pension scheme. Postponement cannot be used for those eligible jobholders who have previously opted out.

Whether you have employees to put back into your scheme or not, you must complete a re-declaration of compliance to tell us how you have met your duties. Remember, re-enrolment and re-declaration are your legal duties, and if you don’t act, you could be fined.

Summary

Auto Enrolment is mandatory, and the responsibility for compliance lies with the employer. Competex is not responsible for ensuring that our clients comply with Auto Enrolment, it is up to you as the employer.

Competex are offering an Auto Enrolment Module, as an add-on to our payroll service, which will assist you in meeting your obligations.  If you would like to use our Auto Enrolment services please inform us.