Dealing with auto enrolment and staying compliant
Auto Enrolment is the Government’s latest initiative to get people saving for their retirement. This checklist highlights the key areas to think about.
When will I have to enrol staff?
At some point between now and April 2017, all employers will have to “enrol” their staff in to a suitable pension scheme.
All of our employees?
To be an eligible jobholder currently you must be earning at least £10,000 and the earnings band is from £5,824 to £42,385.
Are eligible jobholders the only ones I need to worry about?
Again, no. You will have to allow certain employees the right to join the scheme by “opting-in” and you will have to make the scheme available to other employees (but with no requirement for you to contribute).
What if my employees don’t want to join?
They are allowed to “opt-out” of the scheme but you cannot encourage them to do so. But, every three years you are required to go back to them and re-enrol them giving them another chance to opt-out.
So why are lawyers telling me about this?
You will need to review your contracts and terms and conditions of employment to make sure that they are auto enrolment friendly. You might want to make auto enrolment a term of your employment conditions – you will need to make sure your scheme is suitable.
And what else?
You are going to be giving your pension scheme, and possibly a third party IT processor, a whole load of your employees’ personal data so you will need to make sure that the Data Protection Act requirements are met. You are also likely to be entering in to information technology service contracts with these people so you will need to make sure that you either have sufficient protections for when things go wrong or, at least, you know the risks.
OK, and I suppose that I have to do all this now?
No. Auto enrolment is being phased in over several years so you should have time. The date you need to meet will depend on how many staff you had on your payroll in April 2012. As a rule of thumb, the largest employers had to meet the requirements from 1 October 2012 and employers with less than 30 employees have until April 2017 to meet the requirements.
Can I change the date on which I comply?
Yes, but there are general restrictions, in particular for postponing the date.
Well, I hear what you say but my insurance company will do everything so I can just leave it to them, can’t I?
You can. But they won’t look at the data protection issues, you will get their standard terms for processing the data and they will not look at your terms of employment to make sure that you comply with the auto enrolment requirements.
OK, so how much are these additional pension contributions going to cost?
Initially, you will be required to contribute 1% of your employees’ “qualifying earnings” (basically their total remuneration) but this will rise to 3% over time. Employees will need to contribute up to 4% of their qualifying earnings.
How will it fit with my salary sacrifice or flexible benefit schemes?
You can use those schemes with auto enrolment but you must meet the minimum auto enrolment requirements and there can be issues with salary sacrifice arrangements.
Can I simply use my existing pension scheme?
Yes, as long as it meets the minimum criteria for an auto enrolment scheme.
Some of our senior staff came out of our pension scheme for tax reasons in 2006. What do we do about them?
There is an exemption from the requirement to auto enrol where an employer has “reasonable grounds to believe” that an employee has lifetime allowance transitional protection in place to prevent such protection being lost.
So, summarise for me.
You should start early. You need to identify:
- When will auto enrolment apply to you;
- Who in your workforce has to be auto enrolled and who needs to be given the option to do so;
- What pension arrangements are you going to use for auto enrolment – is your current pension scheme fit for that purpose;
- Do you need to or want to revise your employment terms and conditions; and
- Have you chosen a supplier and have you seen their terms for handling data.
So what next?
We are always happy to have a chat, so if you have any questions pick up the phone to one of the team.
This note is a summary of the issues and is not a substitute for detailed legal advice. It may contain information of general interest about current legal topics, but it should not be taken as providing legal advice on any of the topics covered.