Automatic Enrolment

“We’re all in”– what you need to know

Written by Niall Ferguson, National Partnership Manager,

 

Automatic enrolment (AE) is impossible to ignore. From the DWP’s “we’re all in” advertising to the almost daily press coverage of the topic, AE is all around us.

 

While auto enrolment began in October 2012, so far only the largest employers have reached their staging date – the date they have to comply with the new pensions legislation and enrol their employees into a company pension scheme. But, from spring 2014, activity is set to ramp up significantly with many SME’s having to meet their legislative obligations. Every employer from multi-nationals to micro firms will be affected and while the scale of the task will vary, every company will benefit from a well-planned, structured approach to the auto enrolment challenge. Be aware, your Stakeholder pension is unlikely to be appropriate. When should I start planning?

The Pensions Regulator will write and advise you of your staging date, but you can check it yourself by visiting its website www.thepensionsregulator.gov.uk/employers/tools/staging-date.aspx–you will need your employer PAYE reference. Ideally you should start your initial auto enrolment planning 6 months in advance of your staging date and then seriously engage with your pension provider and payroll teams from 4 months out; working in earnest you will need to begin no later than 3 months in advance.

Which staff will qualify? Do you have employees between age 22 and State Pension Age? Do they earn more than £9,440 per year? If so, they’re eligible for auto enrolment.Employees aged between 16 and under 75, earning more than £5,668 but less than £9,440, are not eligible, but can elect to join. Even if they earn more than £9,440, but are under 21 or over the State Pension age, they won’t be auto enrolled. But they can opt-in and then you’ll be required to contribute.

Those aged 16–75 yet earning less than £5,668 will not be auto enrolled, they can opt-in. In this case though, you will not need to contribute. Some providers will offer to do the communications to your workers free of charge if carried out via email, while others will charge. Some might also ask you to handle this yourselves –such as Nest. You need to consider the impact this will have on your company.

How much will I have to pay?

The minimum employer contributions are 1% of each member’s qualifying earnings, increasing to 3% over time. As long as you meet the minimum criteria, you can choose your contribution structure. Your employees will also contribute with a minimum of 1% of their qualifying earnings, increasing to 5% over time.Which auto enrolment scheme will fit my company best?

Start by determining what you want from a scheme, and then compare offerings, costs and benefits. Is a traditional group pension provider appropriate, or would one of the companies like Nest or NOW: Pensions, specialising in the auto enrolment market be best for you? Different companies have different requirements.For some, the cost of implementation and running the scheme will be most important, whereas for others it might be how well the provider integrates with your existing payroll systems.

Day to day administration is the biggest concern for most employers. How do I integrate my payroll?

Payroll can pass data to the Pension providers systems via the internet, using Secure File Transfer Protocol (SFTP), which includes encryption of data. Payroll software assesses your employees against the auto enrolment requirements, and then either you or your pension provider drives communications and then necessary data exchanges, to ensure compliance.It is important to make sure your auto enrolment provider can work with your systems to avoid having to invest in new ones. Some providers will offer you this software for free and as a modular solution, allowing you to choose the elements that are relevant for you, to include data management and tracking for audit purposes, which are essential for reports required by the Pensions Regulator. Other providers will be more restricted, or unable to deliver these services–such as Nest.

Do I have more time?

If you need a bit more time, postponement lets you delay auto enrolment for a period of up to three months. However, it’s important to remember that employees can opt in during any postponement period, so you still need to be able to handle these employees from your staging date. Approaching auto enrolment can feel daunting but there is a wealth of information available and by starting early you’ll avoid a great deal of unnecessary stress.

For more information visit www.nowpensions.com

 

 

 


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