Have you…

• checked which workers might need to be automatically enrolled into a pension scheme?
• chosen a pension scheme and confirmed that the pension provider will accept all your workers?
• ensured that your payroll system supports automatic enrolment?
• started a communication process with your employees?

If the answer is NO, and you are within six months of your staging date, you need to act now!

To encourage more people to save in pension schemes, the government has placed greater responsibility on employers to provide access to pension provision.

From 1 October 2012 new legislation meant that employers had to start making contributions to a workplace pension scheme for their employees and also that employees would automatically join such schemes and make contributions of their own.  Whether there is only one employee or 10,000 employees, auto-enrolment places significant responsibilities on an employer.  Employers will need to automatically enrol ‘workers’ into a work-based pension scheme and make pension contributions.

The law came into force for very large employers in October 2012 but the auto-enrolment rules have staggered implementation dates by reference to the number of employees.

An employer can precisely work out when the auto-enrolment rules will have to be applied as the implementation date (known as the ‘staging date’) is set by reference to the number of persons in an employer’s PAYE scheme on 1 April 2012.

For those with less than 50 employees the earliest start date is 1 June 2015.  The precise date will depend not only on the actual number of employees at 1 April 2012 but also on an employer’s PAYE reference number. The earliest date for an employer with up to 30 employees on 1 April 2012 is 1 June 2015 and the latest date is 1 April 2017.

Importantly, the number of employees an employer has on the actual staging date does not matter. There may be considerably more (or less) than on 1 April 2012.  So if you are an employer, look at the number of employees you had on 1 April 2012 to know where you stand.

The main duties are:

• assess the types of workers in the business
• provide a qualifying auto-enrolment pension scheme for the relevant workers
• write to their workers explaining what auto-enrolment into a workplace pension means for them
• automatically enrol all ‘eligible jobholders’ into the scheme and pay employer contributions
• administer the payment of employee contributions
• register with The Pensions Regulator and keep records

Assessing the types of worker

A ‘worker’ is:

• an employee, or
• a person who has a contract to provide work or services personally and is not undertaking the work as part of their own business

The second category is defined in the same way as a ‘worker’ in employment law.  Such people, although not employees, are entitled to core employment rights such as the National Minimum Wage.  Individuals in this category include some agency workers and some short term casual workers.

The workers will then need to be categorised into three groups:

• eligible jobholders
• non-eligible jobholders
• entitled workers

An ‘eligible jobholder’ is called this because they are eligible for auto-enrolment. They are workers who are:

• aged between 22 years and the State Pension age
• earning over the minimum earnings threshold (£10,000 for 2014/15).  This is the same amount as the PAYE tax threshold. It is expected that the minimum earnings threshold will be changed in line with the PAYE tax threshold in future years
• working or ordinarily working in the UK
• not already in a qualifying pension scheme (provided by the employer)

An eligible jobholder will be auto-enrolled.  They can then opt out of the scheme if they wish. ‘Non-eligible jobholders’ have the right to ‘opt in’.

‘Entitled workers’ are entitled to join a scheme which can be a different scheme to the one used for auto-enrolment. However, there is no requirement on the employer to make employer contributions in respect of these workers.

The table below shows the relationship between the three types of workers.

Earnings	Age (inclusive)
	16 to 21	22 to State Pension age	State Pension age to 74
Over minimum earnings threshold (£10,000)	Non-eligible jobholder	Eligible jobholder	Non-eligible jobholder
Under lower threshold (£5,772)	Entitled worker
Between £5,772 & £10,000	Non-eligible jobholder

The categorisation of workers can be difficult not only because of the definition of a worker but also when assessing those whose earnings fluctuate and risk crossing the minimum earnings threshold.

What is a qualifying auto-enrolment pension scheme?

Employers are able to comply with their new obligations by:

• using an existing pension scheme
• setting up a new scheme, or
• using the scheme set up by the National Employment Savings Trust (NEST)

To be a qualifying auto-enrolment scheme, a scheme must meet the qualifying criteria and the auto-enrolment criteria.

Qualifying criteria

The main part of the qualifying criteria requires the pension scheme to meet certain minimum standards, which differ according to the type of pension scheme.  Most employers will want to offer a defined contribution pension scheme.

A defined contribution is a scheme in which a member’s benefits are determined by the value of the pension fund at retirement.  The fund, in turn, is determined by the contributions paid into it in respect of that member, and any investment returns.

The minimum requirements for such schemes are a minimum total contribution based on qualifying earnings, of which a specified amount must come from the employer.

Auto-enrolment criteria

To be an auto-enrolment scheme, the scheme must not contain any provisions that:

• prevent the employer from making the required arrangements to automatically enrol, opt in or re-enrol a ‘jobholder’
• require the jobholder to express a choice in relation to any matter, or to provide any information, in order to remain an active member of the pension scheme

The second point above means, for example, that the pension scheme has a default fund into which the pension contributions attributable to the jobholder will be invested.  The jobholder should however have a choice of other funds if they want.

Communication

Employers are required to write to all workers (except those aged under 16, or 75 and over) explaining what auto-enrolment into a workplace pension means for them.  In some cases, the pension provider or payroll department may be able to help you with this.

There are different information requirements for each category of worker. For an eligible jobholder, the letter must include details of how the employee can opt out of the scheme if they wish.  The letter must not, however, encourage the employee to opt out.

Postponement

As part of the auto-enrolment process, employers will need to make contributions to the pension scheme for eligible jobholders and non-eligible jobholders who have opted in.  In principle, contributions will be due from the staging date but it is possible to postpone auto-enrolment for some or all employees for a period of up to three months.  However, should an employee request to join early i.e., from the staging date, the employer must have the scheme available to facilitate the request.

Contributions

All businesses will need to contribute at least 3% of ‘qualifying pensionable earnings’ for eligible jobholders. However, to help employers adjust, compulsory contributions will be phased in, starting at 1% before eventually rising to 3%.

There will also be a minimum contribution level which will need to be paid by employees if the employer does not meet the total minimum contribution.  If the employer only pays the employer’s minimum contribution, the employee’s contribution will start at 1% of their salary, before eventually rising to 5%.  One-fifth of each employee contribution is funded by 20% basic rate tax relief from the Government.

Transitional period	Duration	Employer minimum contribution	Total minimum contribution
1	Employer’s staging date to 30 Sep 2017	1%	2%
2	1 Oct 2017 to 30 Sep 2018	2%	5%
1 Oct 2018 onwards		3%	8%

What are the qualifying pensionable earnings?

Earnings means cash elements of pay including overtime and bonuses (gross).

The new regulations only require you to contribute on earnings between the lower threshold of £5,772 and the higher threshold of £41,865 for 2014/15.

You can also use your own definition to calculate your contributions but the definition must comply with the rules and may result in higher contribution requirements by the employer.

Your payroll department will need to make these calculations and deduct the correct amounts required from pay.

Registering with The Pensions Regulator and keeping records

An employer must register with The Pensions Regulator within four months of the staging date (or the last day of the postponement period(s) where postponement was used at staging).  The registration process requires the employer to:

• confirm the correct auto-enrolment procedures have been followed, and
• provide various pieces of information such as the number of eligible jobholders enrolled

IMPORTANT INFORMATION

Finally, an employer must keep records which will enable them to prove that they have complied with their duties.

How we can help

Contact us if you want help with amending contracts/ handbooks/ communicating with employees or finding a pension advisor.

If you would like advice regarding any of the information listed or would like to make a comment about this newsletter please email us at
abby.corfield@peoplebusiness.co.uk or call us on 01932 874 944

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