Chartered Tax Advisers
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  TAX E-NEWS - Auto Enrolment Pension Scheme

We have been receiving numerous questions in respect of the new Auto Enrolment Pension Scheme and thought it best to issue a special one off newsletter giving a summary in plain English to help employers understand their legal duties and be fully aware of their responsibilities.

If you require further information on this topic please do not hesitate to contact us.

Peter McDaid CTA ATT TEP

People are saving far too little for their retirement and are also living much longer resulting in them struggling to make ends meet when they retire. The government in its infinite wisdom has decided to address this issue.

What they have decided to do is put in place a legal requirement for employers to set up a qualifying workplace pension scheme for their employees and to automatically enrol qualifying employees into the scheme. As usual there is a mountain of red tape and administration imposed on businesses which will ultimately bear the cost in time, money and resources with no real benefit to them.

Employers will at some point in time (the staging date) have to automatically enrol their staff into a workplace pension scheme and the timing of this is dependent on the employer’s particular circumstances (i.e. size, number of employees etc.).

Between 2015 and 2017 over 1 million companies will be staging, which is a staggering 51,134 companies per month.

Step by Step Plan

Find out your staging date
A number of businesses have or will shortly receive a letter from The Pension Regulator (TPR) telling them to "ACT NOW" to prepare for auto-enrolment. On this letter is confirmation of the staging date.

If you have not received this use the link below and enter your PAYE reference and this will confirm the staging date for your business.

Provide a point of contact
If you have received a letter it will have requested that you provide a point of contact. In this situation we would advise you to nominate one of the company directors or the business owner as the point of contact.

Check what employees you need to enrol
An employer needs to assess all their employees between the age of 16 and 74 to ascertain which employees, have the right to join, the right to opt in and the right to automatically enrol in the pension scheme. The employee's status/rights varies dependant on their age and earning levels.

Work out your costs
The required minimum contribution levels are:

   Employer  Employee Total
Before 30/09/2017 1% 1% 2%
 01/10/2017 to 30/09/18 2% 3% 5%
01/10/2018 onwards 3% 5% 8%

There will also be one-off costs of setting up the scheme and ongoing compliance costs dealing with payroll and the additional obligations that arise.

Check your records and payroll process
Your payroll software should be evaluated and if necessary updated to ensure that it can carry out the tasks required under auto enrolment. All the normal payroll software on the market, such as provided by the market leaders Sage, will meet the requirements but will charge extra for the privilege.

You also must ensure that all the employee records including date of birth, salaries, NI numbers etc. are completely up to date and correct. These should already be complete as this is an existing requirement under the PAYE RTI system.

Choose a pension scheme
If an employer already has an existing pension scheme they should check to see whether it can be adapted and used for automatic enrolment.

The government has set up a specific pension scheme for auto enrolment called the National Employment Savings Trust (NEST) which has a public service obligation to accept all employees that apply to join it. However by using NEST the employer retains overall responsibility for dealing with the administration of the scheme.

Many of the traditional larger pension providers are not offering their services in this connection as it is not commercially viable to do so. If one looks at the "Association of British Insurers" website this lists a number of their members that do provide auto enrolment schemes.

There are a number of providers on the market that have a web online tailored product to deal with auto enrolment with a view to minimising and streamlining the administration process. Two such are "Now Pensions" and "The Peoples Pension".  Now Pensions is from Denmark and you are restricted to the Now Pensions investments. There is nothing bad here but there is no real investment choice. The People’s Pension has been around for a number of years and the management charge for the investments is 0.5% which is below the .75% maximum charge set by the government. The funds are with Legal and General and are therefore quite flexible. If you want a larger more traditional company Royal London has an excellent reputation. These schemes may require minimum contributions before they will accept an employer's registration or charge a fee.

It is obviously important to select the most appropriate scheme for your business and employees.

Communications with employees
There is a requirement that there is full ongoing communications with the employees advising them on their rights and options under the auto enrolment scheme.

Completion of the declaration of compliance with the Pension Regulator
Once everything is up and running the employer needs to confirm that they have complied with the legal requirements by completing a declaration of compliance. This must be completed and submitted within five months of the staging date or a fine is imposed.

Opting Out
An employee has the right to opt out of the scheme within one month of the auto-enrolment taking place. The employee will be automatically auto-enrolled again every three years and will have the same right to opt out at that time. Please note that it is illegal for the employer to actively encourage employees to opt out. Even if all the employees of a particular employer opt out, that particular employer is still required to set up and register an auto enrolment pension scheme.

We strongly advise that all employers review and act on this at an early stage and not wait until the actual staging date. It will take some time to set this up and comply with the rules and regulations.

What happens if the employer does nothing?
The Pension Regulator can enforce substantial fines and even imprisonment if an employer does not comply with his legal responsibilities.

If you require help on auto enrolment please do not hesitate to contact us.