pension scheme to its workers.
If your business employs just one person, you are classed as an employer and you’ll need to make sure you’re ready to meet your legal duties. You’ll need to tackle tasks like keeping track of who needs to be automatically enrolled and making regular pension contributions.
Employers must automatically enrol all of their jobholders in a workplace pension scheme. Minimum employer contribution levels will also apply and jobholders can choose to opt out of the scheme.
Employers should check in advance whether their existing pension scheme meets the minimum requirements for auto-enrolment. This includes minimum contribution levels (for defined contribution schemes) or benefit levels (for defined benefit schemes).
Also, the jobholder must not be required to provide any information or to express a choice (for example, about the investment of contributions) in order to become an active member. Employers should identify their jobholders and establish which of them are not already enrolled in a compliant scheme.
Jobholders include employees, temporary workers, directors employed under a service contract and agency workers (who are considered to be employed by whoever is responsible for paying them). They must have a minimum level of earnings (set at the income tax threshold) to qualify. Jobholders aged between 22 and state pension age who are not already members of a compliant scheme will need to be automatically enrolled in one.
If any jobholders are not already enrolled in a compliant scheme, employers should consider what scheme to use to meet the auto-enrolment requirements.
Employers will need to check they meet the requirements in respect of minimum contribution levels for their employees. For auto-enrolment purposes, contributions are based on a definition of earnings which includes salary, wages, commission, bonuses and overtime. Contributions are only paid in respect of earnings in a defined band however contributions to an existing scheme may be based on a different definition of earnings, so company payroll systems may need to be updated.
There is an optional waiting period of up to three months before an employee needs to be automatically enrolled into a workplace pension. Workers can, however, opt in during the waiting period. Employers should also put processes in place to identify auto-enrolment triggers for existing employees and new joiners such as when they turn 22 or reach the minimum level of earnings.
Individuals can opt out of scheme membership, within one month of becoming a scheme member or receiving enrolment information. If they do so, all contributions must be refunded. Someone who has opted out can apply to re-enrol, but only once in a 12-month period. Automatic re-enrolment will apply every three years, although employers will have some flexibility about when re-enrolment should take place.
Employers will need to communicate with staff about auto-enrolment and explain that they have the right to opt out if they wish. Employers must also report to the Pensions Regulator to confirm they have complied with their auto-enrolment obligations.
Employers cannot encourage jobholders to opt out of auto-enrolment nor can they encourage candidates to do so during the recruitment process, penalties will apply. Employers should bear this in mind when communicating with their workforce about the new requirements.
Yet the process of auto-enrolment is not something that once completed you can forget about it. It is an ongoing commitment requiring continual monitoring by the employer. Every 3 years employers must carry out a reappraisal of its current workforce and pension scheme members.
Last year The Pensions Regulator (TPR) began carrying out short notice spot checks to identify employers not complying with their pension duties. This nationwide enforcement campaign is to ensure employers meet their automatic enrolment duties correctly.
These checks highlight and identify employers who have not taken the required steps to become or remain compliant so to avoid unnecessary legal penalties employers must ensure compliance.