The New Auto-Enrolment Legislation: What you Need to Know

As of the 1st January 2016, it is now a legal obligation to auto-enrol all eligible employees into a pension scheme.

There is a staging process being implemented, meaning that between now and 2018 around 1.25 million businesses (those who employ between 1 and 30 people) will be auto-enrolling their workforces, each with a different compulsory deadline.

Failing to comply with this change in regulation (or failing to declare that you have done so) could accrue fines of up to £50,000 and additional daily fines of £50-10,000, so it is certainly not something to be ignored.

Steps you need to take

1. First, a review needs to be conducted to determine which of your employees are eligible to be auto-enrolled. Those that are between 22 and the state pension age and earn upwards of £10,000 annually apply.

2. Once you have identified which of your employees require this service, their payroll details need to be updated.

3. Communicating these changes to your employees is an essential step in this process. They need to be made aware of the process and helped to understand it, along with any changes to their pay that they are to expect.

4. A continual monitoring process then needs to be put into place for new employees, existing employees’ income and age, and any that have opted out of the scheme: any changes must be reflected in the pension plan.

Additional things to consider

Is your software up to the task?

It is a good idea to review the system you have in place to ensure that it can handle the extra information on pension contributions that it now needs to hold.

The following information needs to be recorded on the HR system:

–   Each employees’ personal information:

Name and National Insurance number

Their opt-in and joining notices

–    Pension scheme information:

Reference number of your chosen pension scheme

The name and address of the scheme

Updating your system to guarantee that all of this information is fully integrated is likely to benefit your business substantially by making the process a lot easier, saving time and money.

Which scheme to use?

NEST (National Employment Savings Trust) can be used as a default, but there are many other options to consider when broaching the task of auto-enrolling your employees.

If you have done some research and still don’t feel that you are able to make a sensibly informed decision, Independent Financial Advisors (IFAs) may be useful to advise yourself and also your employees with their decisions regarding pension schemes.

Top tips to ensure you aren’t left behind

1.    Get in quickly to avoid an extensive search

This novel legislation is not solely effecting businesses like yours – UK pension providers are currently struggling to keep up with the influx to their businesses, and there are a limited number of schemes.

The new laws also dictate that those over 55 now have different pension freedoms, so these companies are dealing with a tremendous amount of calls for information.

Furthermore, the minimum contributions have remained low at 3-8%, so many providers don’t feel that it’s profitable enough to take on companies purely for auto-enrolment purposes.

Don’t leave it too late in order to escape the trap of limiting your options.

2.  Plan now to recruit the extra manpower required for continuous assessment

Manual assessment is likely to be impossible, especially as it needs to be revisited each payroll period to record any changes and calculate contributions for those employees whose pay fluctuates each period.

Keep in mind that this process is not something to file in a drawer and be forgotten about. There is a certain amount of information that needs to be communicated continuously along with each employee’s payslip and P60.

Additionally, 3 years from your company’s original staging date, each employee needs to be re-assessed and re-enrolled by law. After this has been completed, the declaration of compliance needs to be updated (see below) so this liability is ongoing and will require considerable planning to undertake.

3. Remember your Declaration of Compliance

This is an essential part of the process, as it updates TPR (The Pensions Regulator) to communicate that you have complied with the new legislation and can therefore avoid accruing fines. The majority of fines accumulated, in fact, have been as a result of incorrect or missed filing deadlines (your company could be liable to pay a £400 fixed penalty notice, plus up to £10,000 per day).

The Declaration of Compliance is completed via their online portal and must be kept up to date. This can also be useful to you as a way of keeping on track of where you are along the line.

4. Research will be invaluable

Most of your employees are likely to be unaware of the changes in legislation and will undoubtedly have questions.

For example:

• What and how much is being deducted from my pay?
• Why do I have to be auto-enrolled?
• Why did you choose this particular pension provider?
• How do I opt out?

Taking a small amount of time to educate yourself in order to answer these questions will inform you of the process that needs to be put in place and put your employees at ease. Businesses are required by law to advise their employees on their actions regarding pension plans, and if something goes wrong, they may become personally liable for any loss due to a ‘breach of trust’.