Automatic Enrolment is a new legal duty that requires you to automatically enrol your employees into a pension scheme. Sage have produced the following information to help you discover what it means for your business:
Background
People are living longer and are likely to sustain a longer retirement. Many people are not saving for their retirement at all, and many who are saving, aren’t saving enough.
New legal duties, from October 2012, will require employers to automatically enrol their eligible jobholders into a qualifying pension scheme. The reform will be ‘staged’ over a six year period depending on the size of the employer.
What is Auto Enrolment?
Auto Enrolment is a set of duties to make sure all eligible employees automatically become members of a qualifying pension scheme with a high enough level of contributions.
This means new responsibilities for the employer such as:
Workforce assessment
- Provision and Auto Enrolment into a qualifying scheme
- Facilitating opting out and refunds
- Record keeping
Time Frames
- Any employer with a PAYE scheme registered before 1st April 2012 will have enrolled their staff by April 2017
- Any employer with a PAYE scheme registered from 1st April 2012 will have enrolled their staff by February 2018
Why is the Department for Work and Pensions introducing Auto Enrolment?
- The Government estimates about seven million people are not saving at all for retirement, or not saving enough.
- Life expectancy is increasing – people will live longer in retirement and the size of their pension fund needs to be greater to fund this.
- The Government may not be able to afford to keep state pensions at their current level in the longer term.
The seven steps to enrolment:
1. Know your staging date – when you act
The date that the new law applies to your company is known as your staging date. This date is determined by the size of your largest PAYE scheme as at 1st April 2012. Companies that have PAYE schemes that are shared by multiple employers will have the same staging date in most cases. For multiple companies within one organisation, it is the largest employer that will dictate the staging date and this date will apply to all companies of that PAYE scheme.
For more information about staging dates, please visit http://www.thepensionsregulator.gov.uk/employers/tools/staging-date.aspx
2. Assess your workforce
Workers who will need to be automatically enrolled in a pension scheme are called ‘eligible jobholders’.
An eligible jobholder is:
- Aged between 22 and state pension age
- Working or ordinarily working in the UK
- Earning above £9,440*
* Automatic enrolment earnings thresholds for 2013/2014. These figures are expected to change each tax year.
3. Review your pension arrangements
If you have an existing pension scheme for your workers, you may wish to consider enrolling all eligible jobholders into this scheme. To do this, your existing scheme will need to qualify as an automatic enrolment scheme.
To be a qualifying scheme, minimum contributions must be made or it must provide a minimum rate at which benefits will build up. A scheme suitable for automatic enrolment must also not:
- Impose barriers to joining the scheme, such as probationary periods or age limits for members.
- Require staff to make an active choice to join or take other action prior to joining
- Require the provision of extra information in order to stay in the scheme
4. Communicate the changes to all your workers
You must inform all your workers in writing about the changes detailing how they are affected by the changes. This communication must be provided in writing (which can include being sent by email) and must be specific to the individual.
The duty is on the employer to provide the right information to the right individual, at the right time.
5. Automatically enrol your eligible job holders
There is a process that you will need to follow in order to make an eligible jobholder a member of an automatic enrolment pension scheme. Certain information about your eligible jobholders will also need to be supplied to pension scheme managers for example at specific points in the process.
6. Register with the Pensions Regulator and keep records
You are required to inform the Pension Regulator how you have fulfilled your new automatic enrolment duties by registering this information online shortly after your staging date. You will also need to maintain specified records about enrolled workers, their status within the scheme, the payment of contributions and the qualifying scheme itself.
7. Contribute to your workers’ pensions
Starting on your staging date, you must contribute to your chosen pension scheme on behalf of your workers. The minimum contribution rates that an employer must pay into their workers’ pension scheme will be introduced gradually over a 6 year period (from 2012 to 2018). This is known as ‘phasing’. The minimum overall contribution will be 2% rising to 8%.
Where your employee doesn’t contribute towards the pension, the employer will be expected to contribute the full minimum amount. Phasing will apply to most, though not all, types of pension scheme (your scheme provider will be able to tell you if phasing applies to you).
Auto Enrolment & Sage Payroll
Sage has provided easy to use software for over 30 years, consistently meeting the stringent standard set out by legislation and the needs of customers.
Sage are working very closely with the Pension Regulator, investing significant resource to ensure their payroll and HR solutions are ready to provide you with a smooth transition into Auto Enrolment, guaranteeing compliance now and in the future.
Whatever size or type of business you run, there’s Sage Payroll software for you:
Sage Instant Payroll – for 10 or under employees
Sage 50 Payroll – for 10+ employees
If you need to update your existing Sage Payroll software, please request our latest upgrade offers >>
Auto Enrolment – Payroll Services from Action Planning
Minimise the cost and complexity of managing your payroll by outsourcing it to the Sage Payroll experts.
Our Payroll Plus service adds support for Pensions Automatic Enrolment to our standard Payroll Service, including the supply of a schedule for your contributions and uploading files to the pensions website. Please click here for more details >