I’ll warn you now – this is a long one, and quite a lot of information is included – but includes everything you need to know about Auto Enrolment to ensure you are fully compliant. Get a cup of tea and turn off all distractions and we’ll take you through it as simply as possible.
What is automatic enrolment?
Under the Pensions Act 2008 every employer in the UK must put certain staff into a workplace pension scheme and contribute towards it. This is known as auto enrolment (or AE, as we will use in this blog).
This applies to anyone who employs a member of staff – including a personal care assistant or nanny. Your duties will start from the day your first member of staff starts working for you.
What you need to do depends on your circumstances. You can use this handy tool from the Pension Regulator to work out what your duties are: www.tpr.gov.uk/onlinetool
The tool will advise one of the following:
- You need to provide a pension scheme now; or
- You don’t need to provide a pension scheme now – but still have duties; or
- You are exempt from AE
We will go through each of these below, however, whatever the outcome of the tool, there are a couple of key dates you need to be aware of:
Duties start date– this is the date your first member of staff starts to work for you. Your legal duties start on this date. You will need to put your employees into a pension scheme from this date and start paying contributions into the scheme from the next payday after this date.
Declaration of compliance deadline– this is the date by which you need to confirm you’re meeting your legal duties, also known as making your declaration of compliance, to the Pension Regulator. You need to complete this declaration even if you don’t have any staff to put into a pension scheme, or you could face a fine. The Pension Regulator will write to you to let you know this date, however it is usually around 5 months after the duties start date.
Your First Steps
The Pension Regulator will write to you to let you know you need to start your AE duties. You will then need to confirm who the employer/owner/most senior person in the company is – this will be the Employer Contact. This person will be responsible for making sure the legal duties are met. This will only take you a few minutes to do via this link: www.tpr.gov.uk/elect
If your accountant or payroll provider are helping you with AE you can add their details as the additional contact, and correspondence will be sent to them. If you don’t have this, all the correspondence will be sent to the Employer contact.
You need to provide a pension scheme
You will need to complete a pension scheme and pay contributions into it if anyone who works for you on your duties start date is:
- aged between 22 and the state pension age
- and earns more than £833 per month (£192 per week)
There are 5 steps to follow:
- Choose a pension scheme – it’s best to do this as soon as you look to employ your first member of staff to ensure you’re all ready for your duties start date. You will need to have a pension scheme that is set up for AE. It is a good idea to speak to an IFA for guidance as there are many schemes out there. NEST has been set up by the government specifically for AE, so worth having a look at them first to see if they meet your needs. The pension regulator also has guidance available to help – visit www.tpr.gov.uk/choose
- Work out which of your staff need to be put into a pension scheme– this will need to be done on your duties start date. If anyone who works for you on the duties start date meets the requirement above you are an employer who needs to provide a pension scheme. You’ll need to put your staff into the scheme on your duties date and start paying contributions into it from the next payday after this date. If your payroll software is AE compliant it should review your employees for you and advise which employees need to be put into the scheme.
- Write to your staff– It is a legal requirement to write to all your staff individually to explain how AE applies to them. You must do this within 6 weeks of your duties start date. There is a handy template at www.tpr.gov.uk/write-staff
- Declare your compliance– you will need to confirm to the Pension Regulator that you have met your duties via a Declaration. This usually needs to be done within 5 months of your duties start date, and failure to do so could result in a fine – so don’t forget this step! It shouldn’t take you more than 10 minutes to complete – you will need your scheme details so make sure you have these to hand before starting. If your payroll provider/accountant is looking after AE for you they should be able to complete the declaration on your behalf. You can complete your declaration at www.tpr.gov.uk/declare-web.
- Complete the monthly returns– as part of your payroll you’ll need to file a monthly return to your chosen pension provider to tell them how much the contributions are for each member of staff. Most payroll software companies have integrations with pension providers, so this shouldn’t be a mammoth job.
You don’t need to provide a pension scheme now
If your staff do not qualify as above for auto enrolment into a pension scheme you still have duties. There are 3 steps to follow:
- Check that you don’t have staff to put into a scheme– double check all your staff to ensure none of them qualify for auto enrolment. Use the online tool to make sure: www.tpr.gov.uk/onlinetool. It’s a good idea to re-assess all your staff on your duties start date to ensure none have fallen through the cracks, or if any new staff do need to be enrolled.
- Write to your staff – It is a legal requirement to write to all your staff individually to explain how AE applies to them. You must do this within 6 weeks of your duties start date. There is a handy template at www.tpr.gov.uk/write-staff
- Declare your compliance– you will need to confirm to the Pension Regulator that you have met your duties via a declaration. This usually needs to be done within 5 months of your duties start date, and failure to do so could result in a fine – so don’t forget this step! It shouldn’t take you more than 10 minutes to complete – you will need your scheme details so make sure you have these to hand before starting. If your payroll provider/accountant is looking after AE for you they should be able to complete the declaration on your behalf. You can complete your declaration at www.tpr.gov.uk/declare-web.
You are exempt from AE
If you are a sole director (or two directors – like a husband and wife team), and you therefore don’t have an employment contract then you will be exempt from AE. You would need to make a declaration to this effect using this link: https://www.thepensionsregulator.gov.uk/en/employers/what-if-i-dont-have-any-staff
By law there are minimum contributions that must be paid into the pension scheme. You will need to contribute to the pension as well as your member of staff. You can decide how much to pay in to the pension, as long as it meets the minimum total contributions – so for example, if you choose to pay over the minimum employer contribution, your staff member will need to pay the rest to make it up to the total minimum. Or if you want to cover the total minimum amount your member of staff won’t need to pay anything.
The minimum contributions are as follows:
|Employer minimum contribution
|Total minimum contribution
Once you have completed your initial client duties and declaration you still have duties towards your staff. These include:
- assessing any new staff you take on to see if they meet the age and earnings criteria
- monitoring the ages and earnings of your staff every time you pay them to see if they need to be put into the pension scheme
- paying at least the minimum contribution levels into their pension scheme
- dealing with requests to join and leave the pension scheme
- keeping accurate records of what you have done.
For more information on these please visit www.tpr.gov.uk/continue-duties
Every three years after your duties start date you’ll need to assess the staff not in your pension scheme. This includes certain staff that were previously automatically enrolled but have left your pension scheme. If they meet the criteria to be put back into your pension scheme, then you must do. This is known as re-enrolment. The Pension Regulator will write to you nearer the time to advise what needs to be done and by when. Therefore, it is important that you keep your contact details with The Pensions Regulator up to date.
Can employees opt out?
As you’ve seen above all employees over the threshold must be enrolled. You can postpone the enrolment from 3 months of your employees start date, or your employer duties date. After this time all employees must be enrolled. If your employee wishes to opt out they have a window of 1 month from the first contribution, where they can do so and be refunded for contributions made.
The employee will need to notify the pension company, and the payroll team accordingly, and the payroll administrator can then ensure they are no longer deducted any pension contributions from their salary. The employer will also be able to refund the contribution deducted before opting out.
The pension company will not collect payment for new starters until the 1 month opt out window is completed (to save them making a refund to the employer). After this point there will be no refunds of contributions.
The same applies during re-enrolment, employees who are re-enrolled have a 1 month window to opt out again. Any employees who have opted out within the 12 months prior to your re-enrolment date do not need to be re-enrolled as part of this process.
How we can help
At PPF we are able to assist at every step with your AE requirements. We are not IFA’s, therefore cannot advise on a scheme, however if you choose to use NEST as your scheme, we are able to look after the full set up for you. If you need help with your payroll and auto enrolment please complete this quick questionnaire and at the end there is a link to book a discovery call with us.