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What is a workplace or auto enrolment pension?
Why do we need a workplace pension?
What is a staging date?
Which employees need to be automatically enrolled?
Can employees opt out of the scheme?
How much will we have to pay in?
How much time will it take us to introduce a scheme?
What are the financial penalties if we don’t comply?

What is a workplace or auto enrolment pension?
  
Auto enrolment is the legal requirement to enrol workers automatically into a qualifying pension scheme.  Its implementation is being staged, dependent on employee head count, from 1st October 2012 to 1st February 2018, with the largest employers already having taken action.  Designed to reinvigorate pensions saving, especially for the lower paid, its rules are complex and far-reaching.  They affect all employers and many of their processes. Compliance will be testing, not just at launch but ongoing, and fines for non-compliance will be substantial.

Auto-enrolment brings a new set of duties and obligations, as well as major operational, financial, compliance and reputational risks. It also has implications for your existing HR, pensions and payroll systems, processes, workflows and communications – not to mention the need to manage the potential influx of new members at your staging date. This is a major project requiring significant resources and will be a sizeable undertaking and distraction for you.  

Will your business be ready?

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Why do we need a workplace pension?  

Because you need to comply with the legislation. There are heavy financial penalties for non-compliance.

The Pensions Act 2008 states –
"The employer must make prescribed arrangements by which the jobholder becomes an active member of an automatic enrolment scheme..."

Look at the words used in the Pensions Act 2008.  It's all about the employer making the plans and it's not any plans either.  It has to be "prescribed arrangements" and members have to be automatically enrolled.

This means that employers now need to automatically enrol ‘eligible jobholders’ into a ‘qualifying pension scheme’.  Once automatically enrolled, eligible jobholders will be able to opt out within a month, in which case they will be due a refund of any contributions taken. Thereafter, employers must re-enrol them every three years, again with the opt-out provision.

As an employer, you need to ensure that you understand the basic information on these changes, your staging date and which employees will be affected.

“We already have a group personal pension, shouldn’t we be OK?”
 
Not necessarily.  A review of existing pensions needs to be undertaken sooner rather than later as your scheme may not be compliant with rules relating to charges and employee access.  It might be that you have to introduce a new pension scheme to comply with the rules.  The review is also important as the Pensions Regulator, who will oversee the implementation process, does carry the power to levy fines of up to £50,000 on employers who do not take action. 

Will your business be ready?

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What is a staging date?

The auto enrolment process is being staged, dependent on employee head count, from 1st October 2012 to 1st February 2018, with large employers being the first to have to take action.  You can find out your company’s staging date, if you don’t know this already, by adding your PAYE number in the Pension Regulator’s webpage.   

Will your business be ready?

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 Which employees need to be automatically enrolled? 

Not all of your employees need to be automatically enrolled but it is your duty as an employer to assess whether or not an employee needs to be enrolled.  Eligible jobholders are those working in the United Kingdom aged at least 22 years old who have not yet reached State Pension age and are earning more than £9,440 a year (the income tax threshold at 2013-2014).

Eligible jobholders will only need to be automatically enrolled once they have completed up to three months’ employment, although employers could opt to enrol them before then. An eligible jobholder who wishes to opt in during the waiting period will have the right to do so and benefit from an employer contribution.

Younger employees and those earning less than the specified amount also have to be offered the opportunity to join the scheme but you have no duty to auto enrol them.

Have you completed a workforce assessment?

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Can employees opt out of the scheme?

Yes they can but as their employer you cannot encourage them to do so.  If you do, you face heavy penalties.  An employee who opts out has to be automatically re-enrolled every three years and must decide again whether to opt out or stay in.

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How much will we have to pay in?

The levels of contribution are specified and will increase over the next few years. 

  • From your staging date until October 2017 there is a minimum contribution of 2%, of which at least 1% must come from the employer. 
  • From October 2017 to October 2018 there will be a minimum contribution of 5%, of which at least 2% must come from the employer.
  • From October 2018 onwards there will be a minimum contribution of 8%, of which at least 3% must come from the employer.

Have you started to plan for this in your business?

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 How much time will it take us to introduce a scheme?

It has been estimated that it will take at least a year to put arrangements into place and for larger companies the Pensions Regulator suggests that you should allow 18 months to plan and implement the scheme and to achieve the staging date target.  Even before you start work on planning the scheme you will need to understand the initial costs and the ongoing costs of managing the scheme, completing the returns and making contributions.

                        Do you have enough time?

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What are the financial penalties if we don’t comply?

The Pensions Regulator has the power to impose substantial fines on employers who fail to comply with their automatic enrolment obligations.

Penalties – Failure to comply
Stage 1 – warning – will receive a compliance / unpaid contribution notice
Stage 2 – ‘wake up call’ – fixed penalty £400
Stage 3 – ‘persistent offender’ – escalating penalty
500 + employees – £10,000 per day
250 – 499 employees £5,000 per day
50 – 249 employees £2,500 per day
5 – 49 employees £500 per day
1 – 4 employees £50 per day

Penalties – Prohibited recruitment conduct
250 + employees – fixed penalty £5,000
50 – 249 employees fixed penalty £2,500
5 – 49 employees fixed penalty £1,500
1 – 4 employees fixed penalty £1,000

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    Sense Financial Solutions    
  Sense Financial Solutions

The guidance and advice contained within this website is subject to the UK regulatory regime and is therefore restricted to consumers based in the UK.Sense Financial Solutions is authorised and regulated by the Financial Conduct Authority under Financial Services Register number 616273.Sense Financial Solutions Ltd is registered in England & Wales at Companies House, number 5313395.Registered Office: 43 Walcote Drive, West Bridgford, Nottingham, NG2 7JQ
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