For some people it cannot come soon enough. For others it is to be feared. Whatever the attitude of the individual one thing is clear; there will not be as much money as they thought to enjoy ‘the golden years’. Indeed, many retirees are living close to, or in poverty and it is this that has prompted the government to implement the automatic enrolment of workers into a pension scheme.
What follows below is by no means a comprehensive guide to the process of complying with and managing the automatic enrolment process. Rather it is an overview of the staging process and assessment of workers of an employer who is due to stage, or has staged already.
The automatic enrolment process
The government allocates a ‘staging date’ to each employer, with the biggest employers staging first, and the smallest and newest employers last. It is the latter two types of employers who traditionally make up the bulk of clients for AAT members, and it is the latter two who are staging now or due to stage in the very near future. And as the agent AAT members will be expected to cope with the process.
The first step in the process is to find out the staging date of the relevant employer. Do not expect the employer to provide that information. In many cases the employer will have ‘filed’ the information in a place that is no longer accessible. The Pensions Regulator (TPR) recognises that fact, and, provided that the employer PAYE information is known, the staging date can be found by accessing TPR website. It is recommended to do this as soon as possible.
Once the staging date is known then the costs for the process of staging, ongoing assessment of workers, and employer contributions need to be calculated. This may not be easy, and the costs may not be small, so the sooner the employer is notified of the potential bill the better. Action may need to be put in place to make provision for those costs. Don’t forget to include agent costs too. These will not be cheap.
This is the formal assessment of workers in order to identify those that should be automatically enrolled. Communication with staff notifying them of their options should take place and those eligible to be automatically enrolled need to be identified. Once staging is completed there is a six week window in which to notify the pension scheme of the workers and enrol them into the pension scheme.
Workers who did not meet the criteria for automatic enrolment may wish to take up the option to ‘opt in’ or ‘join’ the scheme. A few workers may decide to ‘opt out’ of the scheme. For each of these category of workers the employer has certain responsibilities.
Finally, do not forget to complete the declaration of compliance form to notify TPR that the employer has staged and all eligible jobholders have been automatically enrolled into the qualifying pension scheme.
The assessment process
Automatic enrolment duties require employers to assess each worker against certain criteria. If the worker meets that criteria then the employer must automatically enrol that worker into a qualifying pension scheme. Workers other than those automatically enrolled may, if they so desire, choose to ‘opt in’, ‘join’ or ‘opt out’ of the scheme
Each worker must be assessed according to three criteria:
- working or ordinarily works in UK
According to the results of the assessment each worker will then fall into one of the following categories:
- eligible jobholder
- non-eligible jobholder
- entitled jobholder
These work or ordinarily work in the UK, are aged between 22 years and their state pension age and earn £10,000 or more per annum. These must be automatically enrolled into a qualifying pension scheme and the employer must make regular contributions.
These work or ordinarily work in the UK, are 16 – 74 years old and earn between £5,824 (the national insurance lower earnings limit) and £10,000. These workers may opt in to a qualifying pension scheme and if they do the employer must make regular contributions.
These work or ordinarily work in the UK, are 16 – 74 years old and earn less than £5,824. These workers may opt in to a pension scheme. The employer however, does not have to make any contributions.
Now that the workers are ‘sorted’ into their categories, the assessment cycle must be repeated every pay reference period.
Pay reference period
Though the eligibility criteria that each worker must meet may remain the same (at least for a fiscal year), the status, ages, and salaries of the workers themselves do not. So every pay reference period the process of assessing each worker must be repeated. This is done by
- identifying the relevant pay reference period (for example, 1 – 31 of the month, or 6th – 5th of the following month)
- Identify the pensionable pay (does it include bonus, overtime, shift pay or other pay?)
- Check the above pay against the earnings thresholds
- Calculate employer and employee contributions
- Pay the combined contributions to the pension provider.
And repeat every pay reference period.
This process is neither cheap nor quick. Care must be taken to ensure compliance as the potential penalties can be steep. Enough time must be allocated to the process and costs must be carefully monitored to ensure the work is adequately paid for.
An increase in staff may be needed to process the data. However, once the process is known and work scheduled this will become as familiar and routine as processing payroll. And as with payroll processing, employer/agent communication is paramount to ensure the smooth running of the automatic enrolment process.
Julie Hodgskin is a fellow member of AAT, runs a licensed accounting practice and is a technical materials author for CIPP.