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Getting auto-enrolment right

The Pensions Regulator, the watchdog for workplace pensions set up by the Department for Work and Pensions, does not hold back from enforcing auto-enrolment.

It recently fined Swindon Football Club £22,900 for repeated non-compliance with its auto-enrolment duties. The club had failed to put eligible workers into a pension scheme and to comply with other workplace pension duties. The regulator’s executive director of auto-enrolment, Charles Counsell, urged other employers to learn lessons from the case and to ask for help with compliance if necessary.

The club was issued with a compliance notice on 18 August 2014, directing it to automatically enrol staff and pay pension contributions. It had not done this by the deadline of 17 October 2014, and there were several other delays in it complying with its duties, so the regulator’s intervention became one of enforcement, instead of being remedial.

The case makes it clear that, whatever the nature of their business, employers must take their obligations to enrol employees on to an occupational pension scheme seriously.

Auto-enrolment ‘staging dates’ (when employers must start complying with their auto-enrolment duties) which began in October 2012 with the largest employers, have now reached employers with fewer than 30 employees, and this continues until 1 April 2017. New businesses will need to start complying between this and the last staging date of 1 February 2018. Employers can check their staging date on the regulator’s website.

Although the process started four years ago, employers are still facing issues with auto-enrolment compliance; for example, not starting early enough. There are around 30 different administrative tasks to complete before staging, so it is important to plan early. The regulator has a helpful ‘duties checker’ template for this.

Employers also need to work out which employees are caught by the regulations. They need to enrol anybody employed in the UK, aged 22 and over but below their state pension age, who earns £10,000 or more.

This sounds simple but there are some tricky areas to consider. For example, an employee with a low base salary but a reasonably high bonus should be treated as being over the earnings threshold, while one with a similarly low salary but no bonus should not. Contractual salary elements, such as commission, lunch vouchers, overtime payments, pay in lieu of holiday, sick pay and salary paid via salary sacrifice, all affect the auto-enrolment earnings threshold.

Senior executive officers who are employed under employment contracts may have to be auto-enrolled, even those with generous pensions if the specific terms of the benefits do not satisfy the ‘quality’ requirements for auto-enrolment schemes.

Another potential problem area can occur for employers with different payroll payment dates for staff based on their hours worked each week or month. If employers find their staging dates are not aligned with their payroll dates, they should ask the regulator for a postponement, if only for a few days, so the dates coincide. Not addressing this at the outset, may make it difficult to unravel further down the line.

Once employees are enrolled, employers have to provide regular information to the regulator, besides making pension contributions. They must re-assess their workforce every pay period if their employees’ remuneration varies (for instance, shift workers paid different amounts at each pay point) and maintain records of the auto-enrolment joining and opting out processes. They must also communicate any important dates or arrangement changes to employees.

An employer providing a contract-based defined contribution (DC) pension scheme for auto-enrolment may think there is nothing more to do once these obligations are fulfilled. However, the employer should ensure that the scheme provider (an insurance company, for instance) has an ‘independent governance committee’ to manage the scheme. Some employers are setting up their own governance committees to review their scheme’s compliance with the legislation and ensure that it remains appropriate to the workforce.  This is a good idea, both from an employee relations viewpoint and given the regulator’s increasing influence in the DC sphere.


Added: 12-07-2016

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