Automatic enrolment (or AE for short)

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Automatic enrolment (or AE for short)
Automatic enrolment (or AE for short)
99,000 employers are due to stage January – March 2016 alone,
so you may find yourself in a queue if you leave it late!
’re
We in
cipp.org.uk
The Chartered Institute
of Payroll Professionals
Friends of
automatic
enrolment
Contents
New to pensions or AE? What will your approach to AE be? 3
Choosing and establishing a pension scheme - what will your approach be? 3
What is the minimum an SME or micro employer has to do to ensure
compliance with AE regulations?
4
5
When you need to do it
What data is needed?
5
What else should an SME or micro employer be doing to safeguard their
employees in relation to their pensions? 5
What do good employee outcomes look like?
What next?
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What if your business does not comply?
2
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New to pensions or AE? What will your approach to
AE be?
Will you promote the introduction of AE to your staff as a positive benefit that
is crucial to supporting them in later life and will enhance your position as their
employer?
Or do you see this as just another challenge which has to be overcome at the
lowest cost and the least effort?
Whichever approach you take there are duties and responsibilities you have as
an employer, not only in meeting the AE requirements but also in monitoring
the scheme you choose over time to ensure it delivers for your employees. Your
staging (go live) date is just the start of your journey.
Choosing and establishing a pension scheme what will your approach be?
For those who are willing and able to pay for advice to get your employees
automatically enrolled you can choose between professional advisers - an
accountant, an employee benefits consultant, an IFA or a payroll bureau - to guide,
or even project manage you through the AE staging process. But don’t assume
that your accountant or payroll provider will do this without checking with them
first.
If you are considering a DIY approach there is a plethora of information available
to support you. We recommend you go to The Pensions Regulator site first. The
links on this page should help direct you to key information.
AE is not a simple process, particularly for smaller employers new to pensions and
that is why planning ahead is key. As an employer, you are choosing the pension
scheme into which your employees will be enrolled and in which they could be
saving towards their retirement for years – a significant responsibility. For example,
it is vital that you understand whether the type of pension scheme you choose will
give tax relief at source or through net pay, as workers who are not paid above the
tax personal allowance could be deprived of tax relief.
Choosing and setting up a pension scheme and enrolling your staff is just the
beginning. The role of the employer in the ongoing monitoring of your pension is
central to ensuring good outcomes for your employees.
For those new to
pensions or AE, this
page directs you to
information on:
The decisions you need to
make/things to check:
● What will be your approach?
● Who will be your point of contact with The Pensions Regulator?
● If you already have a pension scheme in place is it a qualifying workplace pension scheme?
● What type of workplace pension scheme will you choose – master trust or personal pension?
● What salary definition will you elect to base contributions on?
● Are there employees you should postpone enrolment for?
● Will your payroll system cope?
What is your staging date?
www.tpr.gov.uk/employers/
staging-date.aspx
The Pensions Regulator ‘s
Essential Guide to AE:
http://www.thepensionsregulator.
gov.uk/employers/the-essentialguide-to-automatic-enrolment.aspx
What you have to do to comply
with the AE regulations:
www.tpr.gov.uk/employers/yourstep-by-step-guide-to-automaticenrolment.aspx
The Pensions Regulator ‘s Quick
Guide to Selecting a Pension
Scheme for AE:
http://www.cipp.org.uk/
filemanager/root/site_assets/
documents/tpr_quick-guide-selectpension-automatic-enrolment.pdf
http://www.thepensionsregulator.
gov.uk/employers/choose-apension-scheme-or-check-yourexisting-one.aspx
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What is the minimum an SME or micro employer has to do to ensure
compliance with AE regulations?
Put simply you have to:
● Automatically enrol eligible workers
● Set up a qualifying pension (when you have eligible workers or they want to join) ● Inform your workforce about AE and, if using postponement, send out postponement notices
● Allow non eligible workers to join a scheme
● Manage opt-outs and refunds in the opt-out period
● Deduct and pay the appropriate minimum employee and employer contributions into the scheme, based on the salary
definition you have chosen
● Complete a declaration of compliance for The Pensions Regulator
● Automatically re-enrol eligible workers every three years and complete a re-declaration of compliance
● Keep records
●Make timely payments of pension contributions to your pension provider
● You may also have to complete a pension self certification form on occasion (although your pension provider can advise you on this) and issue postponement notices in some circumstances. So, not that simple ……
As an employer you should start by setting your firm’s objectives – are you just going to do the minimum needed to
comply – or will you take this as an opportunity to provide good benefits to your staff and encourage their loyalty ….
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When you need to do it
The links to The Pensions Regulator’s website, particularly the action planner ‘start planning now’ (http://www.
thepensionsregulator.gov.uk/employers/planning-for-automatic-enrolment.aspx), give you a better idea of the steps you
need to go through before staging which, in an ideal world, should start 12 months before your staging date.
Apart from ensuring that your new pension and payroll are set up and your employees receive the necessary
communications, a good reason for preparing early is that 99,000 employers are due to stage January - March 2016
alone so you may find yourself in a queue if you leave it late!
12 MONTHS
BEFORE STAGING
6 MONTHS BEFORE
STAGING
Know your
staging date
Choose a pension
scheme
Provide a point of
contact
ON YOUR STAGING
DATE
AFTER STAGING
Assess and enrol
your staff
Complete the
declaration of
compliance
Check your records
and payroll process
Write to your staff
Check who you will
need to enrol
3 YEARS FROM
THE STAGING DATE
Re-enrolment
Re-declaration of
compliance
Understand your
ongoing duties and
responsibilities
Set your objectives
Create your action plan
Work out the costs
What data is needed?
The automatic enrolment process requires accurate information on your employees in order to calculate whether your
workers are eligible, non-eligible or entitled to join a pension scheme. Don’t be concerned at this time about what those
terms mean - the important thing to understand is that each worker will need to be assessed against certain criteria, and
some payroll or pension software may automate this process.
Missing or inaccurate data could cause errors, delays and extra work and that means more cost for you. It is also worth
noting that by putting all your data in order you will be helping to keep the costs of implementing automatic enrolment
for your business as low as possible.
What else should an SME or micro employer be doing to safeguard their
employees in relation to their pensions?
SMEs and micro employers are not expected to be pension experts, or to employ pension consultancies, investment
analysts, or have actuarial skills to be compliant with AE or to run a good quality pension scheme. The AE solutions
available are packaged pension products that include these functions.
In selecting a packaged AE solution for your employees, you need to take into account the makeup of your firm’s staff,
their ages and their views on investment, especially with regards to the suitability of the default fund for your staff, which
in practice over 80% of members typically stay invested in.
It is important that you regularly review the suitability of your pension to ensure that your employees are getting good
outcomes.
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What do good employee outcomes look like?
At a very high level, The National Association of Pension Funds suggests that good
outcomes include:
Sources of information
an adequate retirement income
The Pensions Regulator:
a private pension that matches pensioners’ changing income needs as they move through retirement; and
The regulator’s AE website:
a private pension that is secure, with the member safeguarded against risks such as the collapse of their pension provider
If these very high level objectives are to be achieved, then members and
those running their pension schemes have to get a series of decisions right
– contributions levels, investment and the way their workers are likely to draw
pension benefits in retirement.
Who is responsible for checking ongoing pension scheme suitability?
As the employer you will be responsible.
In addition to remaining AE compliant, there are three key aspects of running a
pension that an employer should monitor:
1 – Communications – do your employees receive sufficient information in their
first language on which to base key decisions – to understand how their money
will be invested; whether contribution levels are at a level that will generate an
adequate income in retirement; whether investment choices are appropriate to the
level of risk they are happy to take on? Is this information explained simply in a
range of media that suits your staff?
From an employer’s perspective there are mandatory AE communications and here
is a link to these letter templates http://www.thepensionsregulator.gov.uk/writingto-your-clients-staff.aspx.
2 – Operations – are employees being enrolled correctly and on time; are
contributions being correctly deducted and applied; is the pension provider giving
effective and efficient service, providing sufficient member information in an
appropriate format to keep you and your members informed? Can your pension
provider be contacted easily?
www.tpr.gov.uk/automaticenrolment.aspx
AE Detailed Guidance (the
‘encyclopedia of AE’, if you need
the detail):
www.tpr.gov.uk/doc-library/
automatic-enrolment-detailedguidance.aspx
AE Pension Star Ratings
http://defaqto.com/star-ratings/
auto-enrolment-ratings
and good outcomes for your
employees depend on:
● Appropriate contribution decisions
● Appropriate investment decisions
● Efficient and effective administration
● Protection of assets
● Value for money
● Appropriate decisions on how
workers take their pension benefits
And are you meeting your statutory duties as an employer?
3 – Investment – do the investment choices and especially the default fund
continue to suit your staff? Are the investment choices offered in line with how
much risk your staff are happy to take on? Does your scheme need to offer sharia
or ethical funds for your staff to invest in?
Other specific areas to monitor include whether the pension contract continues
to offer value for money; good outcomes for your employees, and whether the
pension is meeting your firm’s objectives.
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Who is accountable for ongoing compliance with AE regulations?
As employer you are accountable, even if the work is delegated.
Who is responsible for ongoing governance of the pension scheme?
The pension provider is responsible.
The master trust solutions for AE are set up under a trust and are overseen by trustees whose role is to look after the
members’ best interests, and whose roles and responsibilities towards the members are laid down in law. The trustees
decide the investment strategy, choose the funds, and have the ongoing governance responsibility of ensuring that the
investments continue to be appropriate and perform as expected. Master trust solutions for AE include names such as
NEST; NOW: Pensions; The People’s Pension; and Trust Pensions to name just a few.
Some insurance companies offer workplace pension schemes for SMEs and micros – brand names you and your
employees will recognize such as Aviva, Scottish Widows and Standard Life. Their AE solutions for SME and micro
employers will be based on personal pension contracts where the employee is the policy holder (hence these are known
as contract based schemes). These schemes are sponsored by the employer, but the member makes the investment
choice or opts for the default.
What next?
Consider your approach to pensions and AE: whether you want to make this a positive and valued experience, not just
for your employees, but also for the business in promoting recruitment and retention; are you willing and able to pay for
advice to get your employees automatically enrolled or will this be a DIY exercise?
Review the decisions you need to make and the things to check list above and refer to The Pensions Regulator’s
website for further information at
www.tpr.gov.uk/employers/your-step-by-step-guide-to-automatic-enrolment.aspx
What if your business does not comply?
The Pensions Regulator will come knocking……
Failure to comply will lead to a statutory notice and then a fixed penalty fine (set at £400) if the issue is not resolved. If
an employer continues to not comply the regulator can issue escalating fines. For an employer with 1-4 staff this will be
£50 per day and for a company with 5-49 staff it is £500 per day. The best way to avoid these penalties is to start to
plan early and to begin your Declaration of Compliance (DoC) as soon as you can. The DoC must be completed within
five months of your staging date and all postponements applied at your staging date must have finished before you
complete it.
NB - You can start completing your Declaration of Compliance early and save your progress as you go.
● More information on penalties
(http://www.thepensionsregulator.gov.uk/employers/what-happens-if-i-dont-comply.aspx)
● Start your declaration of compliance
(https://www.autoenrol.tpr.gov.uk)
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