Between October 2012 and February 2018 employers will have to start auto-enrolling their jobholders into a pension scheme which meets minimum requirements). Jobholders may choose to opt out of the scheme.
Employers should identify the date when they must start auto-enrolment. The largest employers started from 1 October 2012, with smaller employers and new businesses phased in over the next five years. The Pensions Regulator has published tables showing when auto-enrolment applies to employers of different sizes.
Check in advance whether your existing pension scheme meets the minimum requirements for auto-enrolment. These include minimum contribution levels, for defined contribution schemes, or benefit levels, for defined benefit schemes. Jobholders must be auto-enrolled without first being asked to provide any information or to express a choice – for example, about the investment of contributions.
Employers should identify their jobholders and establish which of them are not already enrolled in a compliant scheme. Jobholders include:
- temporary workers;
- directors employed under a service contract;
- agency workers – these are considered to be employed by whoever is responsible for paying them.
Only jobholders aged between 22 and the state pension age who earn enough to pay income tax will need to be automatically enrolled in a compliant scheme if they are not already a member of one.
If jobholders are not already enrolled in a compliant scheme, employers should consider what scheme to use to meet the auto-enrolment requirements.
Employers can put in place a waiting period of up to three months before a jobholder needs to be automatically enrolled into a workplace pension. Jobholders can, however, opt in during the waiting period.
Employers should put processes in place to identify auto-enrolment triggers for existing employees and new joiners – for example, when they turn 22 or reach the minimum level of earnings.
Individuals can opt out of scheme membership. Someone who has opted out can apply to re-enrol, but only once in a 12-month period. Automatic re-enrolment will apply every three years, although employers will have some flexibility about when this should take place.
Minimum contribution levels
Employers who use a defined contribution scheme will need to check that they are satisfying the requirements for minimum contribution levels. For auto-enrolment purposes contributions are based on a definition of earnings which includes salary, wages, commission, bonuses and overtime. Contributions to an existing scheme may be based on a different definition of earnings, so company payroll systems and pension schemes may need to be updated.
Employers who use a defined benefit scheme will need to check that the scheme meets the minimum requirements.
Employers will need to communicate with staff about auto-enrolment and explain that they have the right to opt out if they wish. Employers must also report to the Pensions Regulator to confirm that they have complied with their auto-enrolment obligations.
Employers cannot encourage jobholders to opt out of auto-enrolment, nor can they encourage job candidates to do so during the recruitment process. Penalties will apply. Employers should bear this in mind when communicating with their workforce about the new requirements.
Employers should consider how these new requirements fit in with their future HR strategy and remuneration policy. Administration and payroll processes will also need to be adapted. It may be sensible to put together a team responsible for implementing the auto-enrolment requirements within the company.