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Auto-Enrollment Pension Schemes

Laws came into force on 30 June 2012 which require all employers to enrol automatically all of their ‘eligible jobholders’ into a pension scheme and to pay minimum contributions into the scheme. Penalties of up to £10,000 per day may apply if employers do not comply with the scheme. Employers need to understand their obligations and duties under the scheme.

IMPLEMENTATION AND STAGING DATES

Implementing this new regime into workforces involves a significant amount of planning, preparation and management time for all employers and, as has been seen by those who have already enrolled, it is necessary to start getting ready between twelve and eighteen months prior to the staging date, the date on which auto-enrolment must become ‘business as usual’ for a particular employer. All employers should be aware of their staging date.

The automatic-enrolment process is happening over a five year period and has already begun for the largest employers. The periods within which staging dates fall for different employers are as follows:

– for employers with over 250 employees,  between 1 October 2012 and 1 February 2014;

– for employers with 50 – 249 employees, between 1 April 2014 and 1 April 2015;

– for employers with less than 50 employees, between 1 June 2015 and 1 April 2017;

– for new employers set up between 1 April 2012 and 30 September 2017, between 1 May 2017 and 1 February 2018.

An employer must, by its staging date, enrol its eligible jobholders in an automatic enrolment scheme, unless a jobholder is already a member of the employer’s qualifying scheme. The Pensions Regulator will contact each company around twelve months before their staging date but due to the amount of planning needed it is advisable that employers confirm their date as soon as possible. Employers can find out their own staging date by entering its PAYE reference at thePensions Regulators’ website.

EXISTING PENSION SCHEMES

It is advisable for employers to check whether their existing pension scheme meets the minimum requirements for auto-enrolment, which includes minimum contribution levels or benefit levels depending on the scheme chosen by the employer.

ELIGIBLE JOBHOLDERS

Jobholders are individuals who work in the UK under a contract and can include permanent and temporary employees as well as agency workers. A jobholder is an ‘eligible jobholder’ for the purposes of the scheme if they are:

• between the ages of 22 and pension age; and

• have paid earnings that exceed the ‘earnings trigger’ in a relevant pay reference period.

For the 2013/2014 tax year the earnings trigger is £9,440. Employers should be wary that although some jobholders may not currently be classed as ‘eligible’ there should be a system in place to flag up if and when individuals become eligible, for example upon reaching the age of 22 or if their salary increases and reaches the level of the earnings trigger.

AVAILABLE PENSION SCHEMES

An employer can either use a defined contribution pension scheme (DC) or a defined benefit scheme (DB). With a DC the employer will be required to pay a minimum of 3% of a jobholder’s qualifying earnings into the scheme each year. The overall contributions to a DC scheme must be no less than 8% of the jobholders’ qualifying earnings; therefore jobholders will be required to contribute 5% of their qualifying earnings. Contributions are only paid for earnings within a defined band which currently stands at £5,668 to £41,475.

If a DB scheme is used the employer must ensure the benefits provided by the scheme meet certain minimum criteria.

OPTING IN AND OPTING OUT

Individuals are entitled to opt out of membership within one month of becoming a scheme member or receiving enrolment information. They can later apply to re-enrol but they may only do so once in a twelve month period. Automatic re-enrolment will also apply every three years.

Jobholders who are not automatically enrolled have the option to opt in by giving their employer notice. The employer will then be required to arrange for the jobholder to join an automatic enrolment scheme. Employers who earn less than the qualifying earnings lower band, which currently stands at £5,668, can ask to join but they will not be entitled to receive any employer contributions.

EMPLOYER’S DUTY TO INFORM

Employers have to communicate the necessary information to their staff including their date of auto-enrolment, the value of employer and employee contributions and information about their right to opt out. They have to provide the correct information to the right category of worker within prescribed time limits. The information can be relayed in one staff handbook or information pack, however employers must be aware that where the information includes personal or individual data, it will be necessary to communicate with workers individually. All workers have to be told if their employer is using a postponement period before auto-enrolment (that is postponing auto-enrolment by up to three months).

Employers also have to provide prescribed information to jobholders who do not have to enrol because they are already active members of the employer’s qualifying scheme.

INDUCEMENTS TO OPT-OUT

Employers must not encourage jobholders to opt out as severe penalties will apply. A jobholder who comes across an unlawful inducement can complain about it to the Pensions Regulator within six months of the incident. Employers are also forbidden from asking questions or making statements as part of the recruitment process that indicates that an individual’s application may depend on whether or not they opt out of auto-enrolment.

ENFORCEMENT

The Pensions Regulator is responsible for ensuring that employers comply with their specific duties under the auto-enrolment regime. Employers who do not comply may face enforcement action by the Pensions Regulator. The Pensions Regulator may initially issue various compliance notices directing the employer to take or stop taking particular action. If a breach is not remedied following receipt of a compliance notice then the Pensions Regulator can order two levels of penalties, a fixed penalty notice providing for a flat-rate penalty and an escalating penalty notice where there have been persistent breaches.

For example, employers that contravene the prohibited recruitment conduct rules will be subject to fixed penalties ranging from £1,000 for employers who have up to four workers and £5,000 for employers with 250 or more workers. An employer who ‘wilfully’ fails to comply with certain key duties will be guilty of an offence, liable on conviction to imprisonment or a fine or both.

If you require any assistance or advice with preparing for auto-enrolment or you require any further information please contact Charles Avens, Solicitor, or Richard Monkcom, head of Druces LLP’s Employment team.