Guide to auto-enrolment pension reforms
The auto-enrolment pension reforms require numerous duties from employers. This helpful guide will ensure you’re ready to comply.
13th December 2013 published by Integrity Software Webmaster
This year, the government has begun to take steps to tackle the number of people making inadequate provisions for their retirement here in the UK. With many employees working later in life, living longer and earning comparatively less, existing pension schemes are failing to keep elderly men and women comfortable and self-sufficient during their retirement. The auto-enrolment pension reforms have sought to address this imbalance, and as of this year, all larger companies in the construction sector and beyond must comply with their terms.
What are the pension reforms?
In previous generations, pension schemes were primarily the reserve of workers themselves. While many employers will have offered corporate pension schemes, it was ultimately down to the employees whether they wished to opt in to a scheme or not. Those who opted in would set aside a small amount from their pay each month that they could subsequently access once they reached retirement age, essentially providing for their own future over time. Under the terms of the pension reforms, however, these schemes will no longer be optional. Most companies will have to establish corporate pension schemes before enrolling certain staff members automatically. As some workers won’t be able to afford monthly pension payments, companies will be expected to contribute to their employees’ pension funds too. These contributions will be slowly phased in, the details of which can be found on the Pensions Regulator website.
Who is eligible for auto-enrolment?
Not all of your employees will be eligible for auto-enrolment under the new pension reforms and may choose to opt in or out as they see fit. There are three categories of worker identified by the Pensions Regulator, and they are as follows:
- An eligible jobholder will be aged between 22 and state pension age (SPA), qualifying earnings payable by the employer that are more than the earnings trigger in the relevant pay period, currently £9,440, for 2013/14 tax year and work in the UK. As an employer, you must automatically enrol an eligible jobholder into a qualifying pension scheme.
- A non-eligible jobholder are workers employed in the UK that may be too young or old to be eligible, or may earn below the rate that will trigger auto-enrolment, currently set at £9,440 for the 2013/14 tax year. These workers will not have to be automatically enrolled, but can choose to opt into a pension scheme instead.
- An entitled worker will earn less than the qualifying earnings but is entitled to join a pension scheme. The employer must arrange access to a pension scheme if asked, but does not have to make any contribution.
Auto-enrolment applies to any individual classed as a ‘worker’. A worker is defined as any individual who works under a contract of employment (an employee) or has a contract to perform work or services personally.
When do I need to comply?
The date by which you must comply with the terms of the auto-enrolment pension reforms is known as your ‘staging date’. The government will demand compliance with these terms on a gradual basis, spread over six years and dependent on the size of your company. There is a staging date calculator available on the Pensions Regulator website, and all you’ll need to calculate your firm’s staging date is an employer PAYE reference number.
What else do I need to do?
As an employer in the construction sector under the latest pension reforms, your duties will be as follows:
Registry: Regardless of the size of your company, you must register with the Pensions Regulator within four months of your staging date. Once registered, the government will be able to ascertain whether you’re able to comply with the auto-enrolment pension reforms easily, or whether you may require their assistance. Our own accounting software has optional capabilities for managing auto-enrolment as standard, which will make the processing of such a change much simpler when your firm reaches its staging date. You can choose to postpone automatic enrolment for up to three months from your staging date. However, this does not postpone your staging date so you still have to register within four months of this date.
Automatic enrolment: Unless you have postponed automatic enrolment, any employees who qualify for auto enrolment (eligible jobholders) should be enrolled into a qualifying pension scheme and have contributions made into this pension on the first payroll run after your staging date. Any non-compliant firms will be chased up by the Pensions Regulator, who has the power to enforce compliance. Your accounting software should also give the chance to manage auto-enrolment of employees on an individual basis, particularly as opt-outs, contributions and different earning brackets will give a number of different variables to consider.
Contributions: Those employees eligible for auto-enrolment under the new pension reforms will also require monthly contributions from their employer. The requirements for contributions can be found here, and those companies found to be non-compliant will be likewise punished by the Pensions Regulator.
Managing opt-ins: Those employees who have qualifying earnings below the trigger for auto-enrolment (non-eligible jobholders) may choose to opt in to your qualifying pension scheme and you will also be required to make a contribution. Those employees who don’t have qualifying earnings (entitled workers) may choose to join a pension scheme which you will not be required to pay into. You will be expected to manage the process of opting in/joining the relevant scheme on behalf of your employees.
Managing opt-outs: Some employees may choose to opt out of the enrolment process, in which case it is your responsibility to oversee their withdrawal from the scheme. When you receive a valid opt-out notice, you must refund the jobholder any contributions deducted from their pay within a specific timescale, while any money paid over to the pension scheme must be refunded also.
Communicating with employees: As well as managing the enrolment process, it is your responsibility as an employer to keep employees in the loop regarding how the pension reforms will affect them. Employees need to be informed any time their auto-enrolment assessment is postponed as well as if they they qualify for auto-enrolment or not. They will also need to be informed when they are automatically enrolled and be made aware of their rights under terms of the pension reforms. Failure to communicate these details with your employees will be seen as a failure to comply with government legislature by the Pensions Regulator.
While it may seem as though the new pensions reform are more than a little onerous for employers and business owners, acting quickly and decisively will help you to undergo the process without fear of non-compliance. Integrity Software’s construction account management programs already have measures in place to help firms adjust to the auto-enrolment process, so if you want a simple and expedient changeover with your staging date on the horizon, contact us to see how we can help.