Introduction
All employers must look at their pension arrangements. While some employees must be automatically enrolled in a pension scheme, all employees have the right to request to join a work place pension, and all employers must make arrangements to enable their employees to join a pension scheme.
All employers must inform the Pensions Regulator what they have done to look at their pensions arrangements. People who do not do this may be fined by the Pensions Regulator, so it is important that employers know what they must do. This page explains the steps that existing employers must take.
Why must I look at my pension arrangements?
The government is concerned that many people are not saving enough for their retirement and about the cost of the state pension. They have therefore introduced new rules on workplace pensions.
All employers must look at their pension arrangements, meet the minimum standards required by law and inform the Pensions Regulator that they have met their obligations. Any employer who does not meet these requirements could be fined hundreds or thousands of pounds.
It is therefore important that anyone employing one or more staff knows what they need to do and does what they have to.
When do I have to do this?
Your pension obligations commence as soon as your first PA work. You then have three months from this date in which to get a pension scheme in place and enrol any employees into the pension scheme that you are required to.
What do I have to do?
Speak to your payroll provider
If you use a payroll service to calculate your employees’ tax they may be able to offer some help to you with setting up your pension arrangements. How much help will depend on the payroll service. They will not be able to do everything for you, but they will need to be involved at some point in setting up pensions. Speak to them soon to find out what they can do to help you.
If you calculate your own tax and NI you will need to ensure you know how to pay pension contributions and who you will have to tell about them. Payroll services will have computer software to help them calculate and record this. You may wish to consider using a payroll service if you do not already.
Tell the Pensions Regulator who to contact
The Pensions Regulator will need to know who to contact about your pension arrangements. You must provide them with this information. There is an online form to complete to tell them who to contact. They need to know:
- who the named employer is; and
- who to contact about pension arrangements if this is a different person.
If you need assistance to complete this online form, you may be able to get assistance from your payroll service.
Find out if any employees need to be ‘automatically enrolled’
‘Automatic enrolment’ means that an employee is enrolled in a pension scheme without having to do anything, paying some of their wages and the employer paying some money (see section 4.1 for amounts).
Some employees must be automatically enrolled in a pension scheme from the day they start work, all other employees can request to be enrolled in a pension scheme.
There are three employee groups, with different requirements:
- If an employee is aged between 22 and state pension age (this varies between men and women, and depends on age) and earns over the ‘earnings trigger for automatic enrolment (currently £10,000 per year; or £192 per week) then they will be automatically enrolled in a pension scheme, and the employer must make a contribution towards the pension.
- If an employee earns between the lower earnings limit (currently £520 per month, or £120 per week) and the ‘earnings trigger for automatic enrolment, then they can ask to be enrolled in a pension scheme and the employer must enrol them and make a contribution towards the pension
- If an employee earns less than the lower earnings limit, they can ask to be enrolled in a pension scheme and the employer must enrol them, but does not have to make a contribution towards the pension.
You should look at how much each of your employees earns to see what the requirements are for them. Your payroll service should be able to help you with this. You should write to each of your employees to let them know that pensions will be available.
Even if you have no employees who qualify for automatic enrolment or any employees who wish to join a pension scheme, you must still register that you are an employer with the Pensions Regulator at http://www.thepensionsregulator.gov.uk
Your payroll provider can support you with setting up a Pension Provider when and if required.
Choose a pension scheme
There are many pension providers and making the decision about which scheme to choose can be difficult. The government has set up the National Employment Savings Trust (NEST) which has a public service duty to offer a pension scheme to any employer. Further details can be found here:
http://www.nestpensions.org.uk/schemeweb/NestWeb/public/home/contents/homepage.html
It is however, up to the employer to choose which pension scheme the employees will join. It may be worth seeking the advice of a financial adviser in finding the best scheme for you and your employees. There is a list of pension providers here:
You should choose one pension provider that all staff who need a pension scheme will join. If employees wish to use a different pension provider they would have to opt out of automatic enrolment or decline to be part of the workplace pension scheme.
You should contact a pension provider and discuss what your requirements are. They should be able to support you in setting up the pension scheme.
Once you have chosen a pension scheme, you will need to inform your payroll service of the pension provider you have chosen. The payroll service will inform you of what payments to make in the same way as they do about tax.
Automatically enrol eligible staff
On your pension start date, or the next time pay is calculated, your payroll service will inform you of amounts that need to be paid and this will be recorded on the payslip you issue to your employees.
Write to your employees
You will have to write to your employees on the pension start date to inform them what pension arrangements have been made. Your payroll service may be able to provide you with letters for your employees.
Employees right to opt out of an automatic pension scheme
Employees who will be automatically enrolled can choose to ‘opt out’ of the pension scheme, but:
- they can only opt out once they have been enrolled
- they cannot in any way be encouraged to opt out of a pension scheme by their employer. If you try to encourage people to opt out of a pension scheme, or make opting out of the pension scheme a requirement of the job, you will be liable to a fine of thousands of pounds.
Tell the Pensions Regulator you have done what you have to
All employers must tell the Pensions Regulator what they have done to meet the pension requirements. This is called a Declaration of Compliance. If you use a payroll service, they may be able to help you with this. See section 6.1 for more details.
The Declaration of Compliance is an online form and must be completed within five months of your pension start date. If you do not tell them, you could be fined.
Your Payroll service may be able to help you with this.
How much will this cost?
How much will I have to pay towards pensions?
Some of the cost of the pension will be deducted from the employees’ wages, but the employer will also have to pay towards the pension. From 6 April 2019 onwards the Minimum contribution as a percentage of employee’s wage is 8% with 3% paid by the employer and 5% paid by the employee.
Where can I get assistance to pay for this?
This additional cost may mean that you have to look at your budget again to ensure you can afford the pension contributions.
What help is available to me?
Payroll services
Many payroll services will be able to provide you with assistance when setting up pension schemes, particularly about:
- helping you work out if any employees must be automatically enrolled in a pension scheme
- setting up employees on the pension scheme
- completing the Declaration of Compliance on your behalf
- telling you how much you should pay towards the employees’ pension scheme
- providing you with letters to send to your employees
You should speak to your payroll service to see what help they can offer.
Independent Lives
Independent Lives is here to advise people who receive Direct Payments and Personal Health Budgets on how to be good employers. You may have a named adviser if you are new to Direct Payments, or you can call the Information and Advice service on 01903 219482 to ask about more information on setting up a workplace pension scheme.
The Pensions Regulator
The Pensions Regulator is responsible for this process. Their website has lots of information about introducing workplace pensions:
They have a helpline on 0345 600 1011. You may need your PAYE reference number for them to give you specific advice.
Ongoing responsibilities
Once you have set up any required pension schemes and have informed the Pensions Regulator that you have met your obligations, you will have some ongoing responsibilities. Your payroll service may assist you with some of these. They include:
- new staff should be assessed whether they should be automatically enrolled in a pension scheme, or offered the opportunity to join the pension scheme
- inform people who are automatically enrolled that they have the right to opt out, without pressuring them to do so
- pay contributions towards the pension of any eligible worker who is automatically enrolled or opts into the scheme
- keep track of the age and earnings of employees to see if they become or stop being eligible for auto-enrolment
- every three years, automatically re-enrol any eligible staff in the pension scheme and then offer them the chance to opt out again
Postponing auto enrolment
You may postpone auto-enrolment by up to three months. There are reasons for this:
- to avoid having to enrol an employee just before they leave employment
- to avoid calculating an employee’s entitlement to ‘automatic enrolment’ when they have unusually high earnings for a short period
You can postpone auto-enrolment for a single member of staff, a group of employees or for all staff.
If you wish to postpone auto-enrolment for one of these reasons you have to send a standard letter to your employees informing them that you are postponing the auto-enrolment within forty two days after the date you should have checked if they are entitled to be automatically enrolled.
There is some more information about why you might do this in the following sections.
Bringing the ‘pension start date’ in line with pay dates
It may be that your ‘pension start date’ is at an inconvenient time for lining up with pay days. For example, your pension start date may be on the 1st of the month, but you normally pay staff on the 23rd of the month. If you postpone the auto-enrolment by twenty three days you will bring it in line with the pay day.
Avoiding having to enrol an employee just before they leave employment
If an employee is due to leave your employment shortly after the pension start date, it may make sense to postpone their auto-enrolment date so that they are not enrolled in a pension scheme for a very short period of time, which will be of little benefit to them.
Avoiding having to calculate entitlement when the employee has unusually high earnings for a short period
Some people’s pay varies, with one off ‘spikes’ where they are paid more, for example if they had worked overtime or covered for someone else’s absence. By postponing the auto-enrolment date, the assessment of whether they are eligible may more accurately reflect their usual pay.
Don’t panic!
At first glance this may appear to be a complicated new process that you may not want to think about. The threat of fines by the Pensions Regulator for not doing it may make it seem like something scary that you would rather not deal with.
Don’t worry. It is a complicated new process, but Independent Lives is here to help you through the process. Many of the steps can be done by a good payroll service. Do not feel stupid for not understanding it all; there is a lot to take in and a lot of new jargon to learn. Do not feel afraid to contact us for support.