22 pensions


Auto-enrolment: key facts for employers


Auto-enrolment means that all employers in the UK must automatically enrol eligible jobholders and pay employer contributions in to a qualifying pension scheme from a date after October 1, 2012. David Loosemore, solicitor, and Parminder Latimer, director pensions, Pitmans LLP, take a closer look


The starting date is determined by how many workers an employer has in its PAYE scheme as at April 1, 2012. The following tables act as a useful guide:


Starting (Staging) Dates March 1, 2013


April 1, 2013 – January 1, 2014 April 1, 2014 – April 1, 2015 June 1, 2015 – April 1, 2017


PAYE Scheme size (Workers as at 1/04/12)


10,000 or more 350 or more


between 249 - 50 Less than 50


Contributions will be phased in over 3 transitional periods. Dates To September 30, 2017


Employer minimum contribution


1%


Oct 1, 2017 – Sept 30, 2018 2% From October 1, 2018


3%


Total minimum contribution (employer and employee or employer only)


2% 5% 8%


considerable strain on scheme providers. To date we are aware of at least one employer with over 1,000 employees who has struggled to source a pension provider of its choice; some providers are already seeking more than six months notice in order to set up a new contract based money purchase scheme that is compatible with auto-enrolment.


Employers will need to identify those workers that are eligible for enrolment and may use a combination of pension schemes both existing and new to meet their obligations, as long as the pension scheme(s) they select satisfy minimum quality standards.


To date auto-enrolment has exposed a number of legal and practical challenges for our clients due to elements of the legislation that have been described in some quarters as “insanely complex”. Fortunately, the DWP announced on the February 11, 2013 that a consultation will be undertaken on proposals to make the auto- enrolment process simpler. Based on feedback to date the DWP has identified three immediate areas of concern as follows:


• Making assessment of the workforce easier


• Making it easier for money purchase schemes to show they meet the scheme quality requirements


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• Removing the duty to enrol particular groups such as high earners who benefit from protection because they have already exceeded the lifetime allowance for tax purposes.


In addition we anticipate that the practical application and definitions of “qualifying earnings”, the “relevant pay reference period” and the processes of “opting in” and “opting out” will be looked at among other areas of complexity before any resolutions are reached. A target date for any proposed changes has been identified as the early part of 2014 before the bulk of medium and small employers reach their staging dates.


Whilst some employers may consider this legislative consultation exercise sufficient justification to delay looking at auto-enrolment, our experience to date would suggest the contrary. Approximately 30,000 employers will have to auto-enrol staff over the four month period between April to July 2014, placing a


From our experience to date it is clear that medium and small employers are aware of the headline requirements to auto- enrol workers by a set date and the need to make contributions to an employee’s pension. However, what appears to be less clear are the administrative, data management and communication demands of auto-enrolment and the duties set out in the legislation with regard to these issues. Unlike the stakeholder regime that was introduced a decade ago, employers also need to take note that auto-enrolment will be policed by the Pensions Regulator.


In approaching these challenges Pitmans is working closely with a number of pension specialists so that it can provide comprehensive advice and practical solutions for its clients. The legislation has thrown up a number of pension and employment issues that many consider straight forward on first glance though in practice they can be complex. We have advised on areas such as:


– assessing whether existing pension schemes need to be amended to meet the qualifying criteria for auto enrolment;


– determining whether consultants or self employed contractors are “workers”;


– confirming that employee contracts and an employer’s day- to-day HR practices comply with the auto-enrolment legislation;


– finalising the details of service agreements with third party service providers; and


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– rationalising existing pension schemes.


This is not an exhaustive list and the legal complexities of auto-enrolment should not be underestimated.


We recommend that any employer with 61 to 249 workers should now start planning for auto-enrolment staging dates that start from April 1, 2014, if they have not done so already, and that any employers with over 1,250 workers should take immediate action if they are to comfortably meet their auto- enrolment obligations by their staging date.


For more information contact the Pitmans’ auto-enrolment team.


Details:


David Loosemore 0118-9570240 dloosemore@pitmans.com


Parminder Latimer 0118-9570324 platimer@pitmans.com


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