Auto-enrolment has been a buzzword since the Pensions Act of 2008 made it a legal requirement for all employers to automatically enrol their employees into a workplace pension. Some companies already had sophisticated pension provisions in place, so all they had to do was check that their schemes matched up to the required standards. But the legislation has required more work from the many small businesses that did not previously offer a workplace pension scheme.
When do I need to start the auto-enrolment process?
To give businesses the necessary time needed to put these pension schemes in place, dates for starting the auto-enrolment have been staggered. These have been called staging dates.
From next year, it is the turn of smaller businesses that took on their first employee within the past four years. This covers many traders who have expanded their businesses recently and started to take on employees.
Employers must automatically enrol workers into a workplace pension scheme if they:
are between 22 and State Pension age
earn more than £10,000 a year
work in the UK.
This chart lays out the staging dates for auto-enrolment if you first employed someone on a PAYE basis from 2012 onwards. So, for example, if you first employed someone in June 2014, your staging date would be 1 August 2017.
What do I need to do before the auto-enrolment process starts?
These dates might look like a long way away, but the advice from the Pension Regulator is to start preparing for auto-enrolment at least a year in advance.
The Pensions Regulator has a checklist for employers, which explains exactly what you need to do and by when.
In general terms you will need to:
Make an initial assessment of your workforce
You will need to review who you employ to see whether they will have to be automatically enrolled into a workplace pension, or if they will have the right to opt in or to join a workplace pension scheme. This chart from the Pensions Regulator shows who is eligible.
Choose a pension scheme
If you have workers who will qualify for automatic enrolment, you will need to choose an automatic enrolment scheme. If you already provide a pension scheme, you can continue to use this scheme as long as it meets the relevant criteria.
The Pensions Regulator has guidance for employers about what to think about when choosing a pension. It may be worth seeking independent advice as to what is the best scheme for you and your staff.
Gather the information you need to enrol your employees
Individual pension schemes will be processing large amounts of applications because of auto-enrolment, so this could take longer than usual. Check you have the necessary personal information to enrol your workers easily. You will need up-to-date earnings and age information, plus current contact details so you can write to your workers.
Keep your employees informed
By law, you must provide information to your workers about automatic enrolment, what it means for them and their right to opt out after being automatically enrolled. The Pensions Regulator has detailed information about what you must tell your staff about the pension scheme enrolment, along with templates of letters to send out. It is essential that you provide the correct information in writing - it’s not enough to put up a poster or point them in the direction of a website.
Ensure your systems are in shape
You must ensure that your payroll system is equipped to support the enrolment process and ongoing scheme membership.
You will need to calculate the level of contributions that you pay as an employer, in addition to the deductions from your employees’ salaries. You’ll also need to establish whether tax relief is to be given at source (i.e. where contributions will be deducted from net pay) or under net pay arrangements (i.e. where contributions will be deducted from gross pay) and set up your payroll so that the system can deal with all the changes from the start of the scheme.
Have processes in place so employees can opt-out after being auto-enrolled
You must be ready to manage the process if any workers choose to opt out of the scheme during the opt-out period. This includes building in the ability to refund any payroll contributions promptly and without delay.
As you get closer to your staging date, you will need to make a formal assessment of your workforce to establish exactly what you will be required to do and what information you will need to complete automatic enrolment.
Planning for pensions does not need to be daunting. The Pensions Regulator will contact you when your staging date approaches and there is lots of help out there. With a little organisation you can prepare effectively to put the best pension provision in place for you and your employees.
- Read more advice from Which? on managing your finances
- Find out more about personal pensions with the Which? guide
- Look at why public liability insurance is important for your business