With all of the changes to personal pensions…
New pension reforms underway.
HMRC is seeking to address the growing pressure faced by Treasury in providing for an ageing population due to individuals not saving enough for retirement.
The new regulations are being introduced through the Pensions Act 2008, obligating employers to offer a workplace pension scheme into which most employees are automatically enrolled (by their employer) with the option to opt out (the so-called auto enrolment).
However, this is not an automatic process for employers. Please find a detailed summary below of whether or not this may impact you and what you need to do next.
Deadline – Your Staging Date
Each company will have an individual date on which the law comes into effect for them. This is called your staging date by which you need to have this scheme in place. If you don’t know it, then you can find it at www.thepensionsregulator.gov.uk
Will you have auto enrolment duties?
- This all depends on whether or not you are considered an employer. If you are considered an employer, then you will have auto enrolment duties.
- If you don’t have any staff, then you are not considered an employer and have no auto enrolment duties. This includes a company with:
- A sole director, with no other staff; or
- A number of directors, none of whom has an employment contract, with no other staff; or
- A number of directors, only one of whom has an employment contract, with no other staff.
- If you are not considered an employer and have no auto enrolment duties, you will still need to inform The Pensions Regulator that this is the case. You can do so at https://automation.thepensionsregulator.gov.uk/notanemployer. You will need your letter code and PAYE reference to complete this. We can help you with this process if necessary.
- You must also notify them if circumstances change at any point in time.
- If you do have staff and don’t fall into any of the above company set-ups, then you are considered an employer. This means you will have legal duties pertaining to auto enrolment, which you will need to be ready for by your particular staging date. We have briefly outlined what this means below.
It is worth noting that an employment contract can be written, verbal or implied. If you are unclear on your specific situation, then please visit HMRC’s website here.
What will you need to do if you are an employer?
At its most basic level you need to:
- choose and register with a qualifying pension scheme for auto enrolment;
- manage the deductions from employees and contributions to the scheme;
- communicate with your employees (within 6 weeks of the staging date); and
- manage opt-ins, opt-outs, rejoin requests and re-auto enrolment accordingly.
This is a simplistic summary of what you have to do. There are numerous issues to consider, which is why it is important to start this process well ahead of the staging date and to seek advice where needed.
We encourage all clients to speak to a financial adviser about an appropriate scheme for their business. For information purposes, NEST is the workplace pension set up by government for auto enrolment, it is free and offers one of many potential options.
Who must I auto enrol?
- To establish this, you will need to segment your workforce into eligible, non-eligible and entitled jobholders based on the definition for each in the table below.
- These segments then define who must be auto enrolled and other rights they have.
- These terms cover a multitude of job roles, including traditional, temporary and part-time workers, and potentially contractors too. Make sure you understand your workforce and how to segment it.
|Definition||Age: 22 to SPA*
Earn: >£10000 pa (1)
Work in UK
|Age: 16 – 21 or
SPA* – 75
Earn: £5824 – £10000 pa (1)
Work in UK
|Age: 16 – 75
Earn: < £5824 pa (1)
Work in UK
|Able to opt-in/out||Opt out||Opt in – treat as eligible jobholder||Opt in – no legal obligation to contribute|
*SPA – State Pension Age
1) Earnings refer to equivalent annual earnings; per week and per month equivalents are £10000 pa = £833 pm = £196 pw; £5824 pa = £486 pm = £112 pw
How much will I have to pay?
- Once you have established who is eligible or able to opt in for auto enrolment, you need to work out how much their pension contributions will be.
- There are a number of ways to define the earnings on which you pay contributions.
- Deciding which is right for you will depend on your current pensions, reward strategies and the costs related to each option. The Pension Regulator can help you understand which option is best for you. For our examples below, we will use the “qualifying earnings” definition, which is the default method.
- For the Qualifying Earnings Method:
- The minimum contribution is a percentage of a worker’s gross annual earnings that fall within the qualifying earnings band (£5,824 and £43,000 for 2016/17).
- Anything outside of these limits does not qualify for pension contribution. This means that you only calculate pension contributions on an amount up to £37,176 (£43,000 less £5,824) for employees earning <£43,000, and £37,176 for employees earning £43000 or more. See examples below. These thresholds are reviewed by the government annually.
- The minimum contributions are still being phased in (for all methods) and are detailed in the table below:
Minimum Contributions and Examples**
|To Sept 2017||1%||1%||2%|
|To Sept 2018||2%||3%||5%|
|After Oct 2018||3%||5%||8%|
1 employee earning £43,000 or more before Sept 2017
1 employee earning £43,000 or more after Oct 2018
£1115.28 pa /
£1858.80 pa /
£2974.08 pa /
*Employee contribution has not been separated into tax relief and employee deduction.
**Examples are based on current qualifying earnings bands. If these change (likely), then your contribution would too.
What other legal duties do I have with Auto Enrolment?
- Pay contributions into the pension scheme no later than 22nd of the following month.
- Issue all statutory communications.
- Carry out ongoing assessments beyond the staging date.
- Keep all records.
- Complete a declaration of compliance (within 5 months of your staging date).
Other service providers might carry out some or all of these duties on your behalf, but it is your duty to ensure it is done.
- Encourage employees to opt out of the scheme.
- Discriminate against or imply it is job dependent for employees to want to stay enrolled in or join a scheme.
- Close a workplace pension scheme without automatically enrolling members into another one.
What can Easy Online Accounting help you with?
If you are not an Employer, we can help you submit this information to the Regulator, or provide you with any information you may require to do this yourself (PAYE reference, letter code, etc.)
If you are an Employer:
- Regardless of who your payroll provider is, it is important that you check what they can and can’t do for you.
- If your payroll provider cannot carry out some or all of the functions you need, for whatever reason, then your pension provider might be able to help.
- We can assist in carrying out the following:
- Ongoing assessments – reminding you when you need to carry out any of the ongoing assessments you are required to do (we will not carry out the actual assessment for you).
- Communications – providing templates for the statutory communications with your employers (we will not issue these or manage the communication directly).
- Calculation of pension contributions – advising you how much you need to pay your pension provider each month.