October 2012 saw the introduction of automatic pensions enrolment. Arguably the biggest UK pension reform in recent years, it will see all employers required to put a large number of their workforce into pension saving. Ferdinand Lovett, of pension specialists Sackers, sets out some of the questions employers should now be asking.
Q. When will automatic enrolment apply to me?
This is the first question you should ask seeing as the answer will dictate how long you have to plan for the introduction of automatic enrolment into your organisation. You can check your specific “staging date” (as it is known) on the Pensions Regulator’s website – remember that the date is based on the size of your largest PAYE scheme as at 1 April 2012.
2013 is a big year for automatic enrolment: by the end of the year, all businesses with more than 500 workers will be caught by the pension reforms.
Q. Can I move my staging date?
If you are ready for automatic enrolment sooner than your official staging date or, for instance, you wish to align your staging date with the start of your financial year, you can apply to the Pensions Regulator to bring forward the staging date.
You can also postpone automatic enrolment for up to three months from the date that the employer duties first apply in relation to an individual worker – this might be of use when managing very short-term workers or if you are keen to align the joining and opt-out processes with your internal payroll timings.
Q. I know when my staging date is – so what’s next?
The next step is to establish which business function will drive the automatic enrolment project. It’s likely that input will be required from the payroll, HR and finance departments (and the in-house pensions team, if there is one), but it is important to establish who will own the project so that a coherent project plan can be drawn up. As you work through the detail of automatic enrolment implementation, it will also be key to have agreed who will have authority for making decisions and when/to whom those decisions need to be delegated.
Q. What systems do I need to have in place to monitor the workers who need to be automatically enrolled?
In the first instance, your HR/payroll systems will need to be capable of establishing which workers will need to be automatically enrolled at your staging date. They will also need to monitor the workforce on an ongoing basis to ensure that all new and existing workers who meet the relevant criteria are automatically enrolled at the correct time. The duty to automatically enrol applies to workers aged between 22 and state pension age with annual earnings of more than £8,105 (rising to £9,440 for the tax year 2013/14), so it is essential that these age and earnings criteria can be monitored accurately and acted on swiftly.
Remember also that because of the earnings/age triggers, you may also have individuals working for you who are not eligible for automatic enrolment but have a right:
- to “opt in” to pension saving in a scheme which meets the automatic enrolment quality requirements (meaning they will receive an employer contribution); or
- to join a pension scheme (but with no requirement that they receive an employer contribution).
Q. I already have a pension scheme in operation – can I use that for automatic enrolment?
In most cases, the short answer is “yes”, provided that the scheme meets certain quality requirements.
If you operate a defined contribution arrangement, you should check:
- whether or not the contribution levels meet the minimum automatic enrolment requirements;
- whether or not a default investment option is in place;
- whether or not the elements of pay included in the definition of pensionable pay in the scheme tie in with how “earnings” are defined in the automatic enrolment legislation; and
- what level of contributions the employer/members will have to pay, both during the transitional phase up to September 2018 (where the requirements are lower) and after.
If you operate a defined-benefit arrangement, you should check whether or not it is contracted out of the State Second Pension on the “reference scheme test” and, if not, whether or not it meets the “test standard” set out in the automatic enrolment legislation.
Ferdinand Lovett is a Solicitor at Sacker & Partners LLP