Declan Harrington is a financial advisor at Savage Silk, a multi-disciplinary practice that specialises in offering legal and financial advice. In this article, he offers Lawyer Monthly an auto-enrolment checklist for getting your firm ready for the new pension rules, as well as information about what the penalties are if you don’t.
For the best part of a decade now, auto-enrolment has been a hot topic in the financial sector. The government’s plans for revolutionising UK pension regulations was announced back in 2008 as part of the Pensions Act 2008, with the aim of boosting the low level of savings among UK workers.
The new rules came into force in October 2012, and have been gradually rolled out for employers since — a process that is still ongoing. While many businesses have already had to meet their staging dates, there are many companies that still need to prepare themselves (the last date is in February 2018). If your business’ deadline is still forthcoming, there are a few things that you need to consider beforehand in order to meet the requirements. Take a look at the checklist below to get up to speed.
Be aware of your staging date
As we’ve just mentioned, auto-enrolment has been gradually introduced to employers over a few years. The regulations are compulsory for every employer in the UK so, if you haven’t had to introduce them yet, you need to know what staging date you should be preparing for. The easiest way to find out what deadline you are working to is to use the Pension Regulator’s staging date tool, which will give you an exact date.
Arrange a qualifying pension scheme
In advance of your staging date, you will need to arrange a qualifying pensions scheme that your employees will be enrolled in. Any plan you offer your staff must meet the automatic enrolment criteria, the qualifying criteria, and the minimum requirements as set out by the government. You can find out more about each of these in this detailed guidance document from the Pensions Regulator.
Know which employees need to be enrolled
It’s important that you know which of your employees need to be enrolled onto your chosen qualifying scheme. Any staff members that are between 22 years old and the state pension age must be included in the plan, as long as they are earning more than the ‘earnings trigger’ in each pay reference period — visit the government’s earnings trigger and qualifying earnings page for the most up-to-date information on these figures.
Be ready for staff who choose to opt-out
While it’s likely the majority of your staff will be more than happy to receive a contribution towards their pension fund as part of auto-enrolment, there may be some who decide to opt out. There will be a designated one-month opt-out period where they can give you notice of their choice, and they must be refunded any contributions that have been made within a month of giving notice. The regulations state that they will be automatically re-enrolled every three years, so they will need to give you a new notice each time this occurs. The op-out notice that they must submit is usually provided by the pensions scheme.
Keep up with your responsibilities and compliance
As an employer, you have a responsibility to make sure that you keep up to date with your duties and compliance for employee pensions. For example, how much you need to be contributing should be reviewed regularly, particularly if an employee gets a pay rise or starts to work more hours (or anything else that increases their earnings). A proactive attitude will ensure you remain on target and avoid any penalties.
Furthermore, you must prove through compliance to the Pensions Regulator that you are fulfilling your role. You must be able to provide details of the scheme you have set up for your employees , and how you have met your responsibilities, within five months of your staging date. These details will be checked against your employer PAYE scheme data, and the process must be repeated every three years. Take a look at AccountingWeb’s guide to a declaration of compliance to find out exactly what information you need to submit.
What happens if I fail to meet the requirements for auto-enrolment?
The Pensions Regulator does exactly what its name suggests: it checks that you have met your staging date, and are keeping up with your duties. If you fail to meet either of these requirements, they also have the power to issue penalties and larger fines. These include, but are not limited to:
- A £400 fixed penalty when you fail to respond to one of their warning notices. A warning may be issued the first time you breach regulations.
- An escalating fine of £50 to £10,000 per day when you fail to make your contribution to an employee’s pension scheme by the 19th of the following month. The size of the fine will depend on the size of your business.
- A fine of between £1,000 and £5,000 for prohibited recruitment methods — for instance, asking staff whether they are going to opt-out before deciding on whether they are the right candidate for the role.
Read the Pension Regulator’s compliance and enforcement strategy document for full details of all fines, penalties, and measures that can be used to punish businesses that don’t fulfil their responsibilities.
Keep these guidelines in the lead-up to your staging date and you will be best placed to make a successful transition into the new auto-enrolment scheme.