Auto-enrolment – Are you ready?

Auto-enrolment (AE) was introduced for large employers in 2012. The provisions compel employers to register with The Pension Regulator (TPR) (www.tpr.gov.uk/registration), and ultimately provide adequate provision for employee pensions through an AE process.

Employees can opt out, and certain jobholders can have their inclusion in the process postponed, but the responsibility lies firmly with employers to put proper systems in place to comply with AE.

Importantly, AE was introduced with staging dates. Employers with fewer eligible jobholders or those that are new to the PAYE process have longer to put the necessary systems and processes in place, but even the smallest existing employer must comply by 2017. The need to plan for AE, and the time it will take to put everything in place should not be underestimated.

In addition to ensuring that staging dates are met and adequate systems for AE have been put in place, employers will need to budget for the additional cost burden AE brings. Contribution rates are being phased in and start at 1% of pensionable earnings for employers and 1% for employees. Further increases are scheduled in April 2018 where employer contributions will rise to 2% and employee contributions to 3% and in April 2019 employer contributions will rise to 3% and employee contributions to 5%.

For many employers this will be a significant additional cost which will need to be factored into budgets and forward plans. Employment contracts may also need revision to reflect changes to terms and conditions as a result of AE.

Re-enrolment

For businesses who have already staged for AE, every three years certain staff must be put back into a pension scheme. This is called ‘re-enrolment’.

Re-enrolment duties must be carried out approximately three years after the automatic enrolment staging date. Duties will vary depending on whether the business has employees to re-enrol, or whether there is no staff to re-enrol. Either way, a re-declaration of compliance must be completed to tell TPR how duties have been met.

AE undoubtedly brings an additional administrative burden to employers, as well as additional costs. The relatively swift action already taken by TPR to identify and penalise non-compliance should make it clear that a “head in the sand” approach by employers will not be acceptable.

What is clear is that employers of all sizes need to engage in the process, take advice on how AE affects them, and take steps to put in place adequate systems to satisfy their obligations otherwise they may be next to come under scrutiny from The Pensions Regulator!

For more information or to discuss your AE process, contact Jane Russell or Lynne Vaughan on 01382 312140.