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Workplace Pension Reform and Auto Enrolment

Auto Enrolment is the Government’s attempt to increase participation in workplace pension arrangements.

Auto Enrolment requires employers to enrol eligible employees into a workplace pension, unless the employee opts out. The employer cannot force an employee to opt out.

Once enrolled, there is normally an obligation for both employer and employee to contribute to the pension. Confusingly some of the writing on the topic refers to a “government contribution” – this isn’t in cash, just tax relief.

The process is overseen, and regulated by, The Pensions Regulator (TPR).

 

Who has to be enrolled?

“Eligible job holders” – over 22 and younger than state pension age, and earning over £10,000 pa. These staff members have to be enrolled. The employer will need to deduct employee contributions from their salary, and make the employers contribution on top.

“Non eligible job holders” – not otherwise an “eligible job holder” (above) and, between 16 and 74, and earning over the NI threshold (currently £6,240 per year 2020/22); in practice this means either (i) those aged 22 to state pension age and earning more than NI threshold but less than £10,000 or (ii) those between 16 and 21 or state pension age to 74 and earning over £10,000 (and thus not “eligible job holders” by virtue of their age). These workers have to be given a choice about opting in, and if they do then the employer will need to deduct employee contributions from their salary, and make the employers contribution on top.

“Entitled job holders” – aged 16 to 74 and earning less than amount the lower NI threshold (currently £6,240 per year 2020/22).   Have a right to join an employers pension scheme and have deductions from their salary, but the employer doesn’t have to make employers contributions.

 

Opting out

Employers cannot opt out, but employees can.   However the employer has an obligation to re-enrol anyone who opts out, after three years, although the employee can opt out again.

Employers cannot coerce employees to opt out.

 

Contributions

  • Before 30 September 2018 – employer 1%, employee 1%
  • 6 April 2018 to 5 April 2019  – employer 2% – employee 3%
  • 6 April 2019 onwards – employer 3%, employee 5%

 

Other obligations

Employers will need to:

  • register with The Pensions Regulator
  • select a low charging pension scheme which complies with TPR rules (in most cases the Government sponsored NEST, but there are private alternatives)
  • give information to employees
  • enrol or auto enrol as appropriate
  • pay deductions and employer contributions to pension company
  • re-enrol after three years anyone opting out
  • assess changes in the work force, eg people whose pay level or age changes, which changes their categorisation between eligible, non eligible and entitled, and enrol those coming into the system
  • complete a declaration of compliance with TPR no later than five months after staging date

http://www.thepensionsregulator.gov.uk/docs/automatic-enrolment-online-registration-checklist.pdf

 

Exemptions

Remember that one person companies are employers, and directors or secretaries who receive a salary or fee are employees – conversely being a shareholder and receiving dividends doesn’t render someone an employee – the difference is between earned income (pay, wages, salary, directors fee, etc) and unearned income (dividends).

There are very few exemptions and notably Auto Enrolment needs to operate even if you only have one staff member eg

  • a sole trader plumber with one assistant or
  • a sole trader paying their spouse over the NI limit for administration

However the following exemptions do exist:

  • Office holders (directors and secretaries) who do not have a contract of employment – that is to say and fee/wage/salary is paid for their services as an officer not as an employee – this will be the vast majority of officers.  This is an important exemption for our PSC and small company clients, however if there are any other employees who are not officers then the exemption fails.
  • Employees without an employment contract – we understand that TPR include spouses assisting in a business in this category (unless they have an employment contract)

TPRs guidance on exemptions for officers is at:

 

Staging dates

Staging date is the term for when employers have to start operating Auto Enrolment – this was phased in, but for businesses first employing someone after October 2017, the staging date is when the first member of staff is engaged.

 

Further Guidance

Detailed guidance on Workplace Pension obligations can be found on The Pension Regulators Website

There are other workplace pension stories and comment on our site: see them all here