Automatic enrolment - new and ongoing duties
15 September 2017
An article by Darren Ryder, director of automatic enrolment, The Pensions Regulator (TPR), explains what new businesses need to consider, ongoing duties, the increase in contributions and the importance of compliance.
To date, more than 8.5 million people have been automatically enrolled in a workplace pension by nearly 800,000 employers.
TPR recently published their annual commentary and analysis report, which shows that more than 70% of all new businesses will have staff they will need to put into a workplace pension. This means the majority of new employers will have full automatic enrolment duties and will need to set up a pension for their staff.
The estimates demonstrate how automatic enrolment has and will continue to reverse the decline in workplace saving. In 2012, 55% of staff were saving into a workplace pension and by 2016 that figure had increased to 78%.
In addition, a recent Mori poll commissioned by DWP also showed 83% of staff are pleased they are saving into a workplace pension and a similar number welcome an increase in contributions.
Start-up businesses
From October 2017, anyone thinking of taking on staff for the first time should start planning for their automatic enrolment responsibilities. As soon as they take on staff they will have workplace pensions duties.
Planning for automatic enrolment should be carried out alongside all the other tasks associated with running a business – for example setting up PAYE.
If an employer has eligible staff to put into a pension scheme, they will need to identify a provider and they should leave plenty of time to do this. They should also ensure their chosen payroll solution is compatible with their scheme so that staff receive the pensions they are entitled to on time.
Within five months of taking on staff, employers must complete a declaration of compliance to tell TPR what they have done to meet their duties.
Employers and their advisers should be aware that meeting their duties late or failing to set up a scheme as soon as they employ eligible staff, will not save them money. This is because contributions will need to be backdated to the date they first employed staff.
On-going duties
Automatic enrolment is not a one off-task – employers also have on-going duties. This means they must continue to assess staff and keep records.
Every three years, employers must automatically enrol staff who initially opted out back into a workplace pension. They must then complete a redeclaration of compliance within five months of the anniversary of their staging date. Between now and the end of the year, 12,000 employers are due to complete their re-declaration of compliance.
Research shows that 96% of employers surveyed said they were confident they are successfully meeting their on-going duties. They also said that automatic enrolment was easier than they expected.
Increases in contributions
By law, on 6 April 2018, all employers are required to increase their contributions into their staff's automatic enrolment pension to at least of 2%. Staff contributions will also increase so that their contributions make up the shortfall needed to bring the total minimum contribution up to 5%.
Contribution levels will rise again on 6 April 2019, with employers paying a minimum of 3% towards the pension, and the total minimum contribution reaching 8% - with staff making up the 5% difference.
The table below shows the minimum contributions employers who set up a defined contribution scheme for automatic enrolment must pay, and the date when they must increase. This is calculated based on earnings between £5,824 to £43,000 per year (£486 to £3,583 per month, or £112 to £827 per week), and including certain elements of pay.
|
Date effective |
Employer minimum contribution |
Staff contribution |
Total minimum contribution |
|
Until 5 April 2018 |
1% |
1% |
2% |
|
6 April 2018 to 5 April 2019 |
2% |
3% |
5% |
|
6 April 2019 onwards |
3% |
5% |
8% |
Compliance and enforcement
While compliance with the law remains high, there are a small minority of employers who fail to meet their duties. TPR will take action to ensure staff receive the pensions they are entitled to.
Our quarterly compliance and enforcement bulletin shows where we have used our powers, and the rolling list of employers who have paid an escalating penalty notice but remain non-compliant. The list features both small and multinational companies, with county court judgments secured by TPR for fines up to £52,500.
TPR will consider taking additional enforcement action against employers who remain non-compliant, including prosecution in appropriate cases in accordance with TPR’s published prosecution policy.
For information and guidance on what employers need to do to meet their duties, and by when, visit TPR's website.