Many employers have still not taken steps to work out when they must make arrangements to ensure that they can comply with the new statutory obligations regarding company pensions. Are you one of them and do you know what is involved?
There are lots of questions that employers should be asking now – so that they can get their procedures in place ready for their staging date. It is quite complicated and if you are not sure about the arrangements you need to put in place, you are advised to consult an independent financial advisor who will be able to help. But what are the key issues?
How do I find out when I have to auto-enrol?
Employers are given a "staging date" when they have to begin auto-enrolling eligible employees, who are not already members, into a qualifying workplace pension. The date is based on their size (fixed by the number of HM Revenue and Customs employee records on file as at 1 April 2012) or the letters in their PAYE scheme reference. The staging dates have been subject to several amendments over the last year but the groupings have now been finalised. See the Pensions Regulator website for details http://bit.ly/Kn9ACK
Do all employees have to be auto-enrolled?
No. There are three different types of employee and there are some key differences: eligible jobholders, non-eligible jobholders and entitled workers. Only eligible jobholders have to be auto-enrolled. To qualify, they have to be aged between 22 and state pension age with earnings at or above the PAYE threshold. Those outside these age brackets, or who earn over the national insurance lower earnings limit (LEL) but not enough to pay tax, can voluntarily opt-in to a pension scheme but are not auto-enrolled - they are known as non-eligible jobholders. If they do opt in voluntarily, they must be treated in the same way as auto-enrolees in terms of the type of scheme they join and the contributions made on their behalf.
Entitled workers can be of any age but have earnings under the LEL. They can ask to join a pension scheme but it does not have to be a qualifying pension scheme and the employer does not have to contribute.
What are the deadlines?
An employer has a maximum of one month from the auto-enrolment date to achieve active membership of a qualifying pension scheme for all eligible jobholders. The auto-enrolment date is a jobholder’s 22nd birthday, their start date or the date of the beginning of the pay reference period that their earnings go over the earnings trigger. Within three months of the third anniversary of their staging date, all eligible employees who have opted out must be auto-enrolled again (unless it is a year or less since they last decided to opt out, in which case they are ignored for re-enrolment).
How much will this cost me?
That depends on how many of your eligible employees are not already in a qualifying pension scheme with you at the moment. There is a transitional phase and employer contributions will start at 1% and ultimately rise to 3% of the employee’s qualifying earnings (salary, wages, commission, bonuses, overtime and all statutory payments.) Most current schemes only include basic pay, so you may have to review how this is calculated. The employees’ contributions will start at 1% and ultimately rise to 5% of qualifying earnings. There will be administration fees to consider too so you should start thinking about budgeting for this now.
We already have a good pension scheme – can we use that instead?
You will need to assess if it is a "good" scheme based on the Government's criteria and, if not, make changes to the scheme rules to make it qualifying, which will probably involve employee consultation.
If anyone is not a member of your current (or amended scheme) then you will still have to auto-enrol them once you reach staging if they are an eligible jobholder and let them opt out; then every three years, all those who have opted out will have to be re-enrolled to try to give them another chance at committing to pension saving.
The above information is for general use only. You should seek specific advice relating to your own organisation’s circumstances before putting in place or amending an existing pension scheme.