Justin Rourke, Financial Planning Consultant at Armstrong Watson, sets out the Auto enrolment responsibilities which now fall upon smaller firms regardless of the legal structure of the business.
Since the introduction of Auto Enrolment (AE) in 2012, millions of people have been enrolled into a workplace pension scheme. AE responsibilities now fall upon smaller firms - often referred to as micro employers - and this legislation applies regardless of the legal structure of the business. Limited Companies, LLPs, Partnerships and sole traders are all impacted.
The chart below highlights the peak in the number of firms reaching their Staging Date during 2017 and 2018, so understanding what is required, planning effectively and allocating sufficient time (and resources) will be critical to these firms. Here we list the steps to follow.
1. Step one
Ensure that you know your Staging Date. This is the date by when you must enrol your staff into a pension scheme. You can check your date through the Pensions Regulator.
2. Step two
Assess the category of worker that each member of your staffs fall into, based upon their age and earnings. The Pensions Regulator (TPR) defines a worker as any individual who:
- works under a contract of employment (an employee), or;
- has a contract to perform work or services personally and is not undertaking the work as part of their own business.
A contract does not have to be in writing and can be a verbal arrangement.
If you have at least one worker, regardless of their age or earnings, you must declare your compliance with TPR online and within five months of your staging date at www.autoenrol.tpr.gov.uk.
There are three categories of workers:
|Annual qualifying earnings (2017/18 pay reference period)||Age 16 – 21 inclusive||Age 22 – State Pension Age (SPA) inclusive||SPA – 74 inclusive|
|Lower earnings threshold or below (£5,876)||Entitled worker||Entitled worker||Entitled worker|
|More than the lower earnings threshold (£5,876) and up to the earnings trigger for AE (£10,000)||Non-eligible jobholder||Non-eligible jobholder||Non-eligible jobholder|
|Upper earnings level (£45,000)||Non eligible jobholder||Eligible jobholder||Non eligible jobholder|
3. Step three
Understand your employer responsibilities as detailed below:
- Automatically enrol all eligible jobholders into your chosen qualifying pension scheme.
- Offer other staff the opportunity to opt in or join a pension.
- Write to each staff member informing them how AE applies to them.
- Manage any who choose to opt-out, promptly refunding any contributions.
- Every three years you must automatically re-enrol any eligible staff.
- Complete a declaration of compliance (and re-enrolment) with TPR.
- Keep accurate records, monitor ages and earnings each time your payroll is run.
- Maintain the payment of pension contributions at the minimum contribution levels as specified below.
|Date||Total minimum contribution||Minimum employer contribution||Minimum employee contribution (gross)|
|Until 5 April 2018||2 per cent||1 per cent||1 per cent|
|6 April 2018 – 5 April 2019||5 per cent||2 per cent||3 per cent|
|6 April 2019 onwards||8 per cent||3 per cent||5 per cent|
4. Step four
Set up a qualifying pension scheme to accept pension contributions and enrol all eligible workers.
5. Step five
Employers must communicate to their staff, informing them of their rights and how the process of AE works for them.
6. Step six
Maintain accurate records to ensure compliance with AE rules, noting that pension providers and trustees also have responsibilities to retain records as they may need to be provided to TPR on request.
7. Step seven
Complete the online Declaration of Compliance. This is very important. Following their Staging Date employers must complete this within five months, and two months after every re-enrolment date. TPR may issue a fine if this is not completed on time.
In my experience, it is micro firms that have the most to contend with. Frequently, these firms don’t have the luxury of a Finance Director or a payroll department to aid their planning and implementation of AE, but it is the compatibility of payroll and the pension scheme that is vital for success.
A recent survey by TPR found that 79 per cent of advisers who attended one of their recent events stated that their clients would completely rely on them to help them comply with their new duties, yet with so many firms reaching their Staging Date, this could become an issue.
Unfortunately, some employers are now receiving County Court Judgements (CCJs) for failing to pay their AE fines, having not met their obligations, so it is essential that all employers are adequately prepared and don’t ignore their obligations.
AE, particularly for smaller businesses, can be onerous, so don’t underestimate the time it may take.
Justin Rourke is a Financial Planning Consultant, Armstrong Watson.
Justin is part of the specialist legal sector team at Armstrong Watson, which has 16 offices and over 400 people. The legal sector team advises law firms throughout the UK on financial, strategic, structural and other business improvement issues as well as providing efficient accounting, tax and SRA accounts rules services.
The Law Society has exclusively endorsed Armstrong Watson for the provision of accountancy services to law firms throughout the whole of the North of England.