13th September 2013

Aegon: Automatic enrolment for small business owners

Advisers providing support to corporate clients, individual directors and business owners of all different types (partnerships, sole proprietors, LLPs, etc), cannot afford to ignore the momentum gathering as a result of the automatic enrolment provisions and new employer duties being phased in by the Government, to help people save for their retirement.

Almost all UK employers are affected, and most will need professional help to understand and comply with a range of new employer requirements - both initially and on an ongoing basis.

All employers are given a staging date based on their PAYE scheme size at April 2012, although the employer has an opportunity to bring this forward if appropriate. When this date arrives, employer’s will be legally obliged to automatically enrol all of their ‘eligible jobholders’ (broadly a worker aged between 22 and State Pension Age, earning more than £9,440 a year in 2013/14) into a ‘qualifying scheme’ (a scheme meeting certain standards) and pay contributions on their behalf, unless all such individuals are already active members of such a scheme, or they subsequently opt out of scheme membership.
The minimum contribution rate that needs to be satisfied is 8% of ‘qualifying earnings’ (broadly total earnings in the band between £5,668 and £41,450 in 2013/14), with the employer picking up at least 3% of that cost. There are additional options available to meet the minimum contribution requirement. Contribution levels are being phased in through to October 2018.

Staging dates started in October 2012 for the very largest employers and continue for medium, small, micro and new start employers through to 2017, by which time all employers will be expected to be compliant. Help your business clients find out their own individual staging date

Preparation is key to meeting these new employer duties. Employers will need to plan ahead with your help to identify:

• who will be responsible for automatic enrolment within their organisation
• what their legal requirements are
• the impact on their systems and processes
• the timeframes they need to act within

The supporting legislation is complex and employers will have many key decisions to make. The best prepared employers will be the ones who rely on the knowledge and expertise of their financial advisers, and who give themselves as much time as possible to get ready.
 

• Identify the staging date - the Pensions Regulator (tPR) will write to employers at least 12 months in advance to tell them what their staging date is
• Clean employee data – employers should make sure the data they hold for the workforce is up to date and they have all the information they need in the correct format, for example having email addresses may make the communication process easier
• Assess the workforce – workers will fall into three main categories:
  • Eligible jobholders who must be auto-enrolled
  • Non-eligible jobholders who must be given the right to opt in
  • Entitled workers, who must be given the right to join a pension scheme
• Review existing pension arrangements – is their an existing scheme that already meets the qualifying scheme conditions or could be adapted to suit? What changes need to be made to make it suitable for automatic enrolment? How will the scheme meet the minimum contribution levels?
• Communicate with workers - having a communications plan in place will help the employer get the right information to the workforce at the right times
• Automatically enrol all eligible jobholders and make sure their scheme membership is achieved in the correct timescales
• Manage any opt-ins - make arrangements for any non-eligible jobholders who want to opt in and entitled workers who want to join
• Manage any opt outs received, and make any appropriate refunds of member contributions deducted, within the correct timescales
• Register with tPR within a maximum of four months after the staging date, and make a plan to re-register every three years
• Ensure the agreed contributions for, and on behalf of, jobholders are made in the appropriate timescales
• Keep scheme records and be prepared to provide information to tPR if asked to do so
• Make sure the employer has a re-enrolment process in place to repeat the enrolment exercise, broadly every three years from the staging date

Doing nothing isn’t an option. If an employer doesn’t comply with its duties, tPR has the power to issue notices and impose fixed and escalating financial penalties. For example, if it fails to automatically enrol eligible jobholders, or doesn’t pay contributions to the scheme by the due date.

Employer should be encouraged to rely on the expertise of their financial advisers on automatic enrolment and start their preparation. The earlier the employer starts the process the more prepared it will be when its staging date arrives. Employers can be directed towards our dedicated employer website for more information.

Martin Haggart
Technical Development Manager
Aegon
July 2013
 

Pensions, Auto-Enrolment