Businesses that fail to re-enrol certain workers into the workplace pension scheme every three years could end up being fined by The Pensions Regulator (TPR).
Workplace pensions are arranged by employers, who pay a percentage of a worker’s salary into a pension scheme each month – helping them save for retirement. Auto enrolment, which makes it compulsory for employers to automatically enrol eligible workers into a workplace pension, was introduced in 2012.
However, all employers will need to re-enrol certain workers back into the qualifying pension scheme every three years. Fabian Taylor, independent financial adviser at Nelsons, shares his advice for businesses.
All employers now have an obligation to help safeguard the financial future of their workers through pension auto enrolment.
If employers fail to comply with their legal duties for auto enrolment, TPR has the ability to levy fines against them. Initially, businesses may be sent a fixed penalty notice of £400 however, if this is not paid within a certain period, this can rise to between £50 and £10,000 a day until the fine has been paid.
What do I need to know about re-enrolment?
Employers should start by selecting a suitable re-enrolment date that will apply to all eligible jobholders. Businesses have a six-month window from which they can choose a re-enrolment date – it starts three months before the third anniversary of their last staging date or last re-enrolment date and ends three months after.
At the re-enrolment date, businesses will need to check which workers are eligible for re-enrolment. To make this easier, employers should make sure their worker data is up-to-date by checking they hold the correct details about all those affected by re-enrolment.
Once workers have been re-enrolled, employers have a legal duty to send them statutory communications telling them they’ll be re-enrolled, what this means and that they can choose to opt out of the scheme within one month.
Businesses must also complete a re-declaration of compliance within five calendar months of their re-enrolment date – even if they had no eligible members of staff to re-enrol. An employer’s re-declaration is mandatory and failure to complete it on time could result in a fine.
How do I know which workers need to be re-enrolled?
Businesses will need to carry out an assessment of certain staff on their chosen re-enrolment date to see whether they meet the age and earnings criteria to be re-enrolled (eligible workers are aged between 22 and the state pension age, and earn at least £10,000 in a year). This applies to staff who have previously been assessed for auto enrolment and have:
- Opted out of their auto enrolment pension scheme
- Left the pension scheme under the scheme rules, but not as an opt-out
- Stayed in their pension scheme but have chosen to reduce the level of pension contributions to below the minimum level required by auto enrolment
“If any of the above events happen within 12 months of an employer’s chosen re-enrolment date, they can decide to enrol the eligible staff, but they are not required to do so. They should, however, be re-enrolled at the next re-enrolment date in another three years’ time.
Which workers are excluded from re-enrolment?
Active members of a qualifying workplace pension scheme, along with those aged 21 or under or of state pension age and older are excluded from re-enrolment.
Employers can also choose whether or not to re-enrol a member of staff meeting the age or earnings criteria if any of the events listed in the above question happened more than 12 months before the chosen re-enrolment date and:
- They have given notice to end their employment
- They have primary, enhanced or fixed protection
- They are a director working under an employment contract
- They are a partner in a limited liability partnership company, but not a ‘salaried member’ under HMRC’s tax rules.
Is there anything else I need to know?
Re-enrolment is a good time to review the workplace pension scheme. TPR requires employers to make sure that schemes are monitored regularly and deliver good outcomes for members.
Employers should ask themselves the following questions:
- Does the scheme meet the objectives set out at the start?
- Does the scheme represent good value for money?
- Is the default investment option still suitable?
- Does the scheme offer the full range of retirement options?
- Does the pension provider offer good levels of service?
If a workplace pension scheme follows these principles in its ongoing operations, it will ensure good outcomes are delivered for members.