Update on Pensions Automatic Enrolment
Pensions Regulator is fining firms
The number of firms fined for failing to meet deadlines for enrolling staff in a pension scheme has increased, according to the Pensions Regulator. The automatic enrolment requirements now apply to smaller companies and, as anticipated, this is leading to more frequent breaches. The Pensions Regulator is not turning a blind eye to this lack of compliance: it fined a total of 166 employers £400 each in the last three months of 2014 alone. In 2014, it also issued over 1,000 employers with a "compliance notice", instructing them to remedy a breach of their duties. This suggests that the Regulator is taking its enforcement duties seriously and employers should not assume that any infringements will be overlooked.
What is pensions auto-enrolment?
The process of pensions auto-enrolment was launched by the government in 2012, targeting about 1.3 million employers. It is aimed at ensuring that as many as 10 million employees, who are not currently in a company pension scheme, either join one or join an alternative such as the National Employment Savings Trust (Nest).
The main reason for not signing up staff to a pension scheme on time seems to be that some employers have not given themselves enough time to prepare. The Pensions Regulator recommends that firms start planning at least a year before the staging date for beginning their auto-enrolment process.
Key points for the employer
The key points about the pensions automatic enrolment regulations are:
- The pensions automatic enrolment requirements apply from a date called the "Staging Date", which depends on how many staff were registered on the employer’s payroll on 1 April 2012. All employers who had staff on their UK payroll as at that date will be subject to the requirements by 1 April 2017. Employers that first paid staff through UK payroll later than 1 April 2012 will be subject to the requirements on a date between 1 May 2017 and 1 February 2018 (inclusive).
- Enrolment into the pension scheme must be done without the employee being required to give consent or make any decisions, hence the term “automatic enrolment”.
- The pension contributions required are calculated as a percentage of “qualifying earnings” (all pay, bonus, commission etc., between £5,772 and £41,865 – 2014/2015 figures).
- The minimum employer pension contributions start at 1%, increasing to 2% from 1 October 2017 and then 3% from 1 October 2018. Employee pension contributions will also be required unless the employer chooses to make these too.
- There are also requirements to provide employees with specific communications about pensions automatic enrolment, and to submit a formal declaration of compliance (previously called "registration") to the Pensions Regulator within five months of the staging date.
Letter templates for employers to write to their employees about auto-enrolment can be found on The Pension Regulator website: http://www.thepensionsregulator.gov.uk/employers/letter-templates-for-employers.aspx
In addition, Simply-docs have added an optional pensions auto-enrolment clause to their suite of employment contracts.
The contents of this Newsletter are for reference purposes only and do not constitute legal advice. Independent legal advice should be sought in relation to any specific legal matter.