Although the groundwork for auto-enrolment was laid in the 2008 Pensions Act, it wasn’t officially launched until October 2012 and not all employers have started the process yet, although more than 7.5 million people have already been enrolled. The government’s plan is to turn this figure into 10 million people by 2018 so that workers have something to rely on in retirement apart from the state pension. In fact, according to the Department for Work & Pensions (DWP), auto-enrolment will lead to £17bn more a year in workplace pension savings by the end of the 2019/20 tax year.
What is auto-enrolment?
In the past, many workers missed out on valuable pension benefits either because their employer didn’t offer them a pension or because they didn’t apply to join their firm’s pension scheme. Under auto-enrolment, however, all employers of all sizes will have to automatically enrol their employees in a workplace pension in a bid to fund the pensions gap that stems from an increase in longevity. In essence, without auto-enrolment, the Government wouldn’t be able to fund the growing number of retirees
The scheme has been phased, in starting with the largest employers, and by February 2018 every employer, from a family employing one nanny to a multi-national, will have to have an auto-enrolment scheme in place.
The way auto-enrolment works is that the employer must contribute at least 1 per cent of the employee’s earnings into a pension scheme for the jobholder and they must do this on time or face being fined by the regulator. They must also keep information and records about what contributions they pay to the pension scheme for six years. This will help to ensure the correct contributions are paid and provide evidence in the event of a dispute.
Is everyone eligible to be auto-enrolled?
No, the reforms recognise that not all workers are eligible and that others, such as the self-employed, do not qualify. However, any worker aged at least 22 and not yet at state pension age, who is earning a salary of at least £10,000 and working in the UK, is eligible.
This year is a big one for auto-enrolment, with around 800,000 small businesses reaching their staging date, more than doubling the number in the previous 12 months. Therefore, employers who have yet to stage need to get ready.
Does every employer have to offer auto-enrolment?
Yes. The Government is serious about getting everyone to start auto-enrolment by their staging date; according to The Pensions Regulator (TPR), 6,296 employers were slapped with compliance notices in the last quarter of 2016 alone. That brings the total of compliance notices issued since 2012 to 31, 680. In addition, 919 employers were issued with £400 fixed penalty notices, bringing the total since 2012 to 9,831. On top of that, 870 escalating penalty notices were handed out. So, it’s fair to say that if an employer has not yet reached their staging date, they need to prepare.
Do all eligible employees have to accept auto-enrolment?
No, but it’s not necessarily easy to opt out. For one thing, before an employee can opt out, they have to have been enrolled and they must have been given all the enrolment information by their employer. This is important, as it ensures the jobholder has been provided with sufficient information to allow them to make an informed choice about whether they really do want to opt out. Employers should also note that this information can’t be given verbally during a chat. It has to involve paperwork and be formally presented.
In addition, employees can only opt out during the ‘opt out period’, which is one month from when active membership of a pension scheme has been achieved. They have to do this in writing using a special opt-out form.
The employer’s role in opt out
On receipt of the opt-out notice, the employer must unravel the membership of the pension scheme they have offered to the employee so that the jobholder is treated as if they were never a member. In addition, they must keep a record of any opt-outs, as they will be required to automatically re-enrol them on the third anniversary of the enrolment date.
What can smaller businesses do to prepare for auto-enrolment?
For one thing, they should start engaging their employees now; despite extensive advertising in various media, only last month research found that less than 40 per cent of workers knew if they were auto-enrolled and only 16 per cent could confirm that they knew how the scheme works. However, if the employer had posters up in kitchen areas and organised workshops on auto-enrolment to explain the benefits – of which there are many – everyone would be prepared come the day of staging.
Contact Briars Group today and find out what you need to do to comply with the auto-enrolment legislation.