Everything you need to know about pension auto enrolment solutions.
Prior to the introduction of pension auto enrolment, employees would decide whether they wanted to be included in their company’s workplace pension scheme or not. With the introduction of automatic pension enrolment as part of the Workplace Pension Reform designed to tackle the issue of millions of employees not saving enough for retirement, this all changed.
The law now requires employees to be automatically included in a workplace pension scheme unless they specifically take action to opt-out or don’t meet the criteria. But it can get complex – which is why some employers decide to take a look at the auto enrolment solutions available to them.
What is required for auto enrolment?
The pension regulations relating to automatic pension enrolment came into force in October 2012 and have been rolled out over a five-year period, starting with the largest employers and then moving through the stages to eventually include every employer, even if they only have a single employee.
All of the responsibilities fall on to the employer to assess staff and enrol those who meet the criteria. These criteria currently require the employee to be at least 22 years old (but under State Pension age), to normally work within the UK and to be earning more than £10,000 a year. If they are already part of a qualifying workplace pension scheme they will not meet the criteria. And it is possible for employees who don’t meet some criteria to still request to join: for example, if they don’t meet the £10,000 threshold but earn more than £6240 a year.
At the moment the total contribution level stands at 8% of the employee’s qualifying salary. As a minimum, the employer’s contribution must be at least 3% of that, meaning employees must contribute the remaining 5%. If the employer pays in more, the employee contributions can reduce accordingly. Be aware that there can be some variation in the way qualifying salaries are calculated.
When an employer takes on a new employee, their legal duties in terms of auto enrolment begin on day one of that employment (although they can carry out an initial assessment before that date). There are some instances where postponement is possible, allowing an employer to delay assessing and auto-enrolling employees by up to three months. There must however be a valid business reason for this – for example, to align enrolment with pay periods, or if someone has a probation period. Employers must let employees know this, and still give them the option to pay their own contributions during this period if they wish.
It’s not simply a case of enrol the employee then forget about it
Employers have ongoing responsibilities above the requirement to continue paying contributions. They must deal with requests to join or leave the pension scheme, stay on top of any changes (like ages or earning levels) that might mean an employee becomes eligible to be auto enrolled, and manage the three-yearly re-enrolment of any employees who previously left the scheme, even if they subsequently then choose to opt-out again.
In addition to all of this, employers must maintain all of the required record obligations and complete a declaration of compliance which is submitted to The Pensions Regulator to confirm that all requirements have been met. This must also be done every three years.
Auto enrolment solutions can help lift the burden
Managing all of the aspects of pension auto enrolment can be complicated and highly time consuming. We have only covered some of the most general points and even then, it’s apparent how much is involved.
And it can be worrying knowing whether you are doing everything correctly. If you don’t comply with what is required of you as an employer, it could lead to enforcement action including compliance notices and substantial penalties from The Pensions Regulator. All contributions that should have been paid to employees will also need to be back paid and in some cases employers might find themselves having to pay their employees’ contributions that have been missed as well as their own.
Penalties start at £400 for a fixed penalty notice with escalating penalties being fined at a daily rate of between £50 to £10,000 depending on the number of employees. In the absolute worst-case scenario of wilfully failing to enrol eligible employees into a pension scheme and knowingly providing false information in a declaration of compliance, a criminal prosecution could follow with the potential for a two-year prison sentence.
For most employers it is unlikely to ever reach that extreme. But errors and oversights can occur and keeping on top of everything takes a lot of effort. Fortunately, options are available that mean you don’t have to handle it all yourself.
What auto enrolment solutions are available?
Auto enrolment solutions are designed to make sure the employer is meeting what’s required of them while lifting the burden off them to a large extent. It is possible to hand over the management of pensions auto enrolment, sometimes as part of a stand-alone arrangement for pensions management, or as a module within your payroll software or as part of a fully outsourced payroll solution.
These services effectively fulfil the role of the employer and deal with all aspects of the process including all management and administration. One sometimes overlooked benefit of these kinds of auto enrolment solutions is the fact that many providers will take care of all of the required regulatory communications too, providing information in a clear and engaging format to help employees understand more about their pension.
Are you looking for pension auto enrolment solutions? Then talk to us
Automatic enrolment can be a complex issue to deal with. To help companies who would value support with this aspect of payroll, we have created pension enrolment software to make the process a great deal easier to manage.
Our Pensions Regulator compliant software offers a complete auto enrolment solution, including automatically assessing employees at each pay run to add eligible employees, enrol others who have opted-in to join the scheme and process any opt-outs. It will also send all associated data directly to your pension provider. Our software creates all required reports on each pay run and also conducts re-enrolment assessments on three yearly cycles.
Even better – if you decide to outsource your full payroll to us, we can take care of every aspect of payroll including pension auto enrolment. To find out more about the payroll solutions we offer, please do contact us.