The Pensions Regulator - 07.01.2015
"Workplace pensions are here. Act now. It's the law."
1. Nominating a contact for the pension regulator
First, it is important that you provide The Pensions Regulator with the contact details of the most senior person within the organisation. For example, this could be the CEO or managing director.
You can also nominate a secondary contact. This should be someone who will be assisting in the implementation of the workplace pension in your business.
2. Staging Date/Duties Start Date
It is imperative that you find out when you actually have to enrol your staff. This is called your staging date (or duties start date for employers who hire staff for the first time on or after 1st October 2017) and will depend on how many staff you have and which of those staff are eligible to be auto enrolled. You may have already received a letter explaining what your staging date is and when it is. However, if you have lost this letter, or did not receive it, then you can use our free planning tool to find out when your staging date is.
3. What Shouldn't You Do?
It is important that you auto enrol your employees on time and then submit a declaration of compliance (see below for details). Employers must not take action to try to stop employees from enrolling in the pension scheme.
This could be in the form of acting to discourage existing employees from auto enrolment or making it clear when hiring new employees that those who wish to be auto enrolled will be considered unfavourably.
4. What Penalties Could You Face If You Don't Comply?
If you fail to comply with statutory notices, you may be issued with a fixed penalty notice. These types of penalties are set at £400.
Another option for The Pensions Regulator is to issue an escalating penalty. These types of penalties will vary depending on the number of staff you employ i.e. if you employ a high number of staff then the penalty will be much higher. These penalties range from £50 to £10,000 per day.
An alternative penalty at the disposal of The Pensions Regulator is the civil penalty. This penalty may be utilised if you fail to pay the contributions that you owe your staff when they contribute to their pension scheme. This penalty can be up to £5,000 for individuals, i.e. business owners or managers. There can also be fines of up to £50,000 for the company itself.
The final option that The Pensions Regulator can call upon is the 'Prohibited Recruitment Conduct Penalty Notice'. The severity of this penalty varies depending on how many staff are employed in the company and can range from £1,000 to £5,000.
The Pensions Regulator - 07.01.2015
"We aim to fully recover all the penalties that we issue."
The Pensions Regulator can and will initiate formal legal proceedings to recover penalties that businesses and employers have been issued with. Employers who are found to have breached their duties also face criminal prosecution.
To get a full breakdown of the different penalties, click here.
5. Who Should Be Enrolled? Assess Employees
You will need to enrol the following people:
Employees who are younger than the normal state pension age, and 22 or older.
Employees whose income per year is more than £10,000.
Employees who are employed in the UK.
6. How To Enrol Employees
Otherwise, here are some pointers about how you can do it yourself.
Defined contribution pension schemes tend to be popular amongst many employers as they do not stipulate a certain size of employee pension pot at retirement age. Therefore, employers are not forced to contribute over the minimum to employees' pension pots. However it is worth bearing in mind that your application for a pension scheme may not be accepted as different pension firms cater for different sizes of business. It is therefore worth starting this process a reasonable time before your staging date, in case you find it difficult to get your application accepted by some providers. Alternatively you can sign up with us now, in just a few minutes, at no cost to your business.
6.1. What To Look For In A Pension Scheme On Behalf Of Employees
Employers will need to ensure that the pension scheme they choose will invest employees' pension contributions in reasonable and profitable avenues for the duration of the scheme. This will mean ensuring pensions are invested sensibly both now and in the future. The pension scheme will also need to offer investment options that are conducive to the needs of your employees. For example, if the majority of your workforce is nearing retirement age then there is little point investing in avenues that will see a return in the very distant future. It is also important that the pension scheme chosen will ensure that your employees understand the different investment options that are available to them.
6.1.2. Does The Scheme Benefit Employees?
There are minimum contribution levels, which this guide will detail later. However, it is important that employers ensure that the pension scheme of choice will allow the employee and employer to contribute these minimum amounts, otherwise the employer will be failing in his/her employer duties and may face some of the penalties listed above.
Employers will need to assess the costs associated with each scheme and decide whether the scheme provides good value for money for their employees. This will need to be a continuous exercise to ensure that the scheme continues to be a sound option to grow employees' pension pots. This may involve comparing the costs involved for each scheme with alternative pension schemes, before coming to a decision on which scheme is the best value for your employees.
It is also important to establish whether the pension provider will take into account the interests of members of the pension scheme in the day-to-day running of the pension provider. It would also be prudent to have the business decisions made by the pension provider scrutinised by a third party to ensure that they are necessary and do not affect the interests of pension scheme members in an unreasonable way.
6.2. Accountability Of Pension Scheme Provider
A further thing to consider is ensuring that the people who invest your employee's money are continuously accountable and have their decisions regularly scrutinised. This will require employers to assess the competence of the investment decisions and the credibility of the structure put in place. The investments should be undertaken by FCA regulated people and firms who are professionally qualified to invest and have experienced trustees (the majority of whom are independent) looking after the employee's funds. Smart Pension has the highest calibre of each.
Additionally, employers must ensure that employees who are enrolled into a pension scheme have a way to communicate with, and give feedback to, the pension provider.
6.3. Communication To Employees
The pension provider must also clearly communicate the pension options to employees who are nearing retirement so they are fully informed about their pension options when they do retire. It is sensible to establish whether the pension provider will offer pension advice to soon-to-be retirees and the price of this advice.
There are many more factors that you should consider when selecting a pension scheme. Click on these resources for more information:
- A quick guide to selecting a good quality pension scheme for automatic enrolment
- TPR: Employers's Guide to finding a provider
6.4. What Do Employers Need To Tell Employees?
Before you send communications to your employees, you must assess your workforce to identify who is eligible for auto enrolment.
There are three different types of Worker: eligible jobholder, non-eligible jobholder and entitled worker (to learn more about each worker type, see our Employee Classifications & Qualifying Earnings page) Within six weeks of your staging date passing, you will need to send a written communication to these three types of worker employed by your company.
Our pension platform will assess your workforce for you. Our pension platform will also provide you with the required correspondence to send to your employees to inform them of the impending changes that will affect them. We will also email the required correspondence to those employees who have email addresses, on your behalf.Click here to sign up to Smart Pension now
7. Inform Your Employees
It is an employer's legal duty to write to their employees and inform them of how automatic enrolment will affect them. This must be done within six week of your staging date/ duties start date. You must write to those members of staff who are automatically enrolled (see Eligible Jobholder below and what points to cover within your communications) as well as those who are not being enrolled (see Non-eliglble Jobholder and Entitled Worker below and what points to cover within your communications).
By choosing a workplace pension provider like Smart Pension, the administrative task of composing and distributing communications to all staff is done automatically for you.
The Eligible Jobholder( Glossary? )
- Why the employee has been automatically enrolled.
- Specific details of the pension scheme the employee has been automatically enrolled into.
- How contributions will be deducted from their pay.
- That the employee has a right to opt out of the pensions scheme you have provided for them.
The Non-Eligible Jobholder( Glossary? )
The non-eligible jobholders will not be automatically enrolled, but do have a right to opt in to your company pension scheme. If they do opt in, then the employer must also contribute to the non-eligible jobholders pension scheme. You must write to these workers and explain of auto enrolment applies to them.
The Entitled Worker( Glossary? )
The entitled worker is not eligible to opt in to the company pension scheme. However they are still entitled to opt in to the company pension scheme. But the employer is not obliged to contribute to the pension scheme of the entitled worker. The employer must write to the entitled workers and explain how the pension scheme applies to them.
Postponement( Glossary? )
Employers wishing to use postponement must write to their staff explaining the date that they will be assessed on. Smart Pension provides this communication for employers. Letters are sent to each member of staff but we also send copies of each letter to the administrator of the Smart Pension account so these letters can be printed out and handed to each individual.
The Opt Out Notice( Glossary? )
Eligible jobholders have the right to opt out of the company pension scheme. You do not need to provide a mechanism for eligible jobholders to do this. Your pension scheme provider will provide your eligible jobholders with this mechanism. This is to ensure that the employer has no influence over how and if the eligible jobholder opts out of the pension scheme.
If a new employee is hired, or an existing employee becomes eligible for auto enrolment, employers will need to auto enrol them too and write to them to inform them of the same points as above.
8. Declaration Of Compliance
After you have enrolled the staff that are eligible to be enrolled, you must tell The Pensions Regulator that you are fully compliant. To do so, follow this link, declaration of compliance (registration) checklist. You have five months from your staging date to complete the declaration of compliance.
9. How To Ensure That You Stay Compliant With Workplace Pensions
Your company must make contributions to your employees' pension schemes, by law. Employers only need to contribute if the employee is in the pension scheme. If the employee opts out, ceases their membership or is not auto enrolled and chooses not to opt in, then the employer isn't required to pay into the employee's pension scheme.
At the moment, and until 05/04/18, employers must contribute an amount equal to 1% of their employee's salary every time the employee is paid. The minimum employee contribution percentage is currently 1% and this amount can be paid by the employer if they choose.
We operate a Net Pay Arrangement. All employee contributions should be deducted from the gross pay before tax is applied. This means an employee does not pay income tax on earnings that are paid into their pension. So, for every pound saved into their pension, the take-home pay for a basic rate tax payer would only reduce by 80p.
Remember, you must pay the full contribution into the scheme, without deducting any tax from it.
|Minimum Employee |
|Minimum Employer |
However, employer, employee and government contributions to the employee pension pot are set to rise. This is known as contribution phasing.
|Employee Contribution||Employer Contribution||Total Contribution|
|06/04/18 to 05/04/19||3%||2%||5%|
Keeping appropriate records will help employers to stay compliant. The type of matters of which employers should keep a record include: pension scheme opt-out requests employers receive from employees who have been auto enrolled and all company and employee information that employers have used to auto enrol a business at its staging/duties start date.
Employers will also need to ensure that they comply with re-enrolment. Re-enrolment is a cyclical process that occurs every three years on the anniversary of a scheme's start date. Every member who opted out during the initial enrolment into the scheme is automatically re-enrolled (provided they are still eligible). Any member of staff who is eligible but isn't already an active member of the scheme, will also be enrolled at this time.
To find out more about re-enrolment with Smart Pension including a step-by-step employer's guide, please visit our Re-enrolment and Switching Pension Provider page. To find out more about the five things employers should consider when going through the re-enrolment process, check out our re-enrolment article here.
In conclusion, it is vital that employers get workplace pensions and auto enrolment right otherwise the penalties that employers could face are very substantial. Becoming and staying compliant with workplace pensions will require time, money and effort but being issued with a penalty will cost a lot more. Our platform will track your business' progress throughout the auto enrolment process, and beyond, for free.
To learn more about workplace pensions, please visit our Knowledge Bank.
Why not download our FREE e-book - Auto Enrolment: The Essential Guide to Workplace Pensions for Small and Medium Businesses, which provides employers with a concise yet very thorough look into the requirements of auto enrolment, from signing up for the government Gateway through to declaration of compliance and the ongoing responsibility of communication with your employees.
Ready to go? To sign up your company now, please click here. You could be compliant in just a few minutes at absolutely no cost to your business.
11. Summary - Employer's Automatic Enrolment Duties Checklist
- Find out when your staging date/duties start date is (as soon as possible).
- Choose a workplace pension provider (approx. 6 months before your staging date/duties start date).
- Remain compliant by carrying out your ongoing duties.
- Use our Staging Date Look-Up Tool to find out what your staging date is. For employers hiring staff for the first time on or after 1st October 2017, your duties start date is the first day your first member of staff starts work.
- Click here to sign up with Smart Pension.
- For information on mandatory future workplace pension contribution increases, see contribution phasing.