Automatic Enrolment: Getting the Basics Right
What Is Automatic Enrolment?
Automatic enrolment is the UK Government’s initiative under the Pensions Act 2008 to help more people save for retirement through a pension scheme at work.
A report conducted by the Government in 2005 disclosed that many people were not saving into a pension plan and even those that were hadn’t been saving enough for retirement. This meant that many people could not live comfortably in their retirement on the State Pension alone. Since people are also living longer, this also entailed a greater strain on government resources to provide the State Pension.
This is why automatic enrolment was introduced, so as to give employees the opportunity to build up their pension savings and benefits through employer contributions.
It doesn’t matter if you’re a salesperson, a chef or have a personal carer or nurse; you become an employer from the day your first member of staff starts working for you. Your duties towards automatic enrolment start from that date, and this is called the ‘duties start date’.
Who Is Enrolled?
Automatic enrolment applies to all employees in the UK, but not all of them need to be enrolled automatically. You don’t need to enrol an employee this way if they:
- Are under 22 years of age, or over the State Pension age
- Earn less than £10,000 per annum
- Work outside of the UK
- Work for a one-person company
- Have already enrolled in a qualifying pension scheme
By contrast, you must enrol and make your employer’s contribution for all staff members if they:
- Are aged between 22 years and the State Pension age
- Earn at least £10,000 per annum
- Normally work in the UK (including people who are UK-based but travel abroad for work)
In case a staff member becomes eligible due to a change of age or earnings, you must include them in your pension scheme and write to them within 6 weeks of the day that they meet the eligibility criteria.
As an employer, it is compulsory for you to automatically enrol eligible workers into the pension scheme. However, workers who do not want to join the scheme for some reason may choose to opt-out for a three-year period.
What Does It Mean for Employers?
As mentioned above, your ‘duties start date’ is determined from the day your first member of staff starts working. The Pensions Regulator (TPR) has created an online auto-enrolment tool that will take you through all the steps you’ll need to take to comply with your auto-enrolment and ongoing re-enrolment duties.
It is your responsibility as an employer to comply with the duties. Those SMEs that do not carry out their duties until the last minute may face a capacity crunch and also incur heavy fines. There are spot checks across the UK on employers to make sure they comply with their workplace pension duties.
Within five months of your duties start date, you need to complete a Declaration of Compliance to inform TPR on how you have met your duties. This applies whether or not you have put anyone into the pension scheme. This checklist from the Pensions Regulator on the Declaration of Compliance will help you figure out the details.
To reiterate, there are only two key dates that you need to remember:
- Duties Start Date: The date your first member of staff begins working for you. Your legal duties begin on this date. If you put your staff into your pension scheme on this date, you need to start adding employer’s contributions to it from the next payday after this date.
- Deadline for Declaration of Compliance: The date by which you must inform the Pensions Regulator on how you have met your duties towards automatic enrolment. You need to do this by completing an online form, which we’ve linked above. The Pensions Regulator will contact you to tell you about your deadline. This is a legal duty, and you need to ensure that you submit the Declaration of Compliance by the deadline, even if you don’t have any staff to put into a pension scheme. If you fail to do this, you may face enforcement action, including hefty fines.
Once you have completed these initial duties along with the Declaration of Compliance, you still have to carry out ongoing duties towards your staff. This includes:
- Evaluating whether any new staff member meets the age and earnings criteria and needs to be put into your pension scheme. Use this tool from TPR to help you.
- Keeping a check on the ages and earnings of your staff every time you pay them to see if they need to be put into a pension scheme.
- Paying at least the minimum contribution levels for each staff member into their pension scheme.
- Dealing with requests to enrol or leave the pension scheme
- Maintaining accurate records of all your activities regarding automatic enrolment.
The auto-enrolment process isn’t as difficult as it might seem at first glance. Even though it will become a habitual workplace process in due time, you must still ensure that you carry out your duties consistently and timely as they are legally binding.