Pension Auto Enrolment for Employers
Pension Reform that affects ALL employers
As you may well be aware, new pension legislation has been introduced which makes it mandatory to offer a pension to your employees. Each employer is allocated a date (referred to as the staging date) by which this mandatory pension must be in place. If you would like more information on the legislation and your responsibilities, please refer to either The Pensions Regulator (TPR) website or The Guide to Auto Enrolment for an Employer.
“Auto Enrolment” requires regular and continuous assessment of your employees. Given that we maintain and manage your payroll services, we are probably best placed to fulfil this assessment. However this drives additional processes on our part to ensure your business:
- Meets the minimum requirements of this mandatory legislation
- Does so in the most cost effective way, whilst minimising the administrative burden upon you
- Removes the risk of your business attracting significant penalties or criminal proceedings which at worst could lead to imprisonment.
Beyond the assessment of your employees at each pay period, there are other statutory requirements placed on you as an employer. The outcomes of the assessment must be communicated with your employees, and in turn an opportunity for your employees to either opt out or opt in of the pension scheme, and for either the pension provider or employer to handle employee queries.
We have been evaluating the procedures required, and as a result wish to make you aware of our considerations, and a proposed managed services solution:
- We will undertake the assessment of employees at each pay reference period (although we cannot be held responsible for any inaccuracies) and deduct contributions where someone is assessed as eligible
- In addition we will manage the passage of assessed data to one of our preferred pension providers
- We have evaluated the pension provider market and have selected NOW: Pensions who take a non-selective approach to accepting employer schemes and we can therefore guarantee that they will be able to deliver a compliant pension scheme to you
- In addition to setting up a legislatively compliant scheme NOW: Pensions can also deliver all of the required communications on your behalf. These communications will be tailored to each employees’ status: eligible, non-eligible or entitled.
- We will subsequently receive a data file from NOW: Pensions to confirm who has remained a member or otherwise, update payroll records accordingly and refund or deduct contributions on an on-going basis.
- In addition, NOW: Pensions will maintain the necessary audit trail and keep records for the statutory period. We will be able to produce the necessary reports for TPR as and when required.
- We would expect you to prefer NOW: Pensions to handle any pre-member pension queries.
- We propose that you define your contribution structure and use of postponement as soon as possible and advise us at your earliest opportunity.
IF YOU INTEND TO MAKE YOUR OWN ARRANGEMENTS PLEASE NOTIFY US AS EARLIER AS POSSIBLE AND NO LATER THAN 1 MONTH BEFORE YOUR STAGING DATE.
The Pensions Regulator lists providers you can consider, and additionally, we have liaised with some of them, and there are two providers that take a non-selective approach with fixed terms for all employers:
NOW: Pensions is an independent, multi-employer trust serving thousands of employers and hundreds of thousands of employees from a wide range of sectors. A subsidiary of one of Europe’s largest pension funds, Danish pension scheme ATP, NOW: Pensions offers a simple and cost effective workplace pension solution direct to employers and via advisers and the payroll sector.
In April 2013, NOW: Pensions became the first master trust to attain the NAPF’s new PQM Ready Standard. The benchmark shows employers that NOW: Pensions is a well governed pension scheme with low charges and good member communications.
In January 2015, NOW: Pensions achieved independent assurance of scheme quality in accordance with the new master trust assurance framework AAF02/07 introduced by The Pensions Regulator (TPR) in conjunction with the Institute of Chartered Accountants in England and Wales (ICAEW).
NEST is a UK multi-employer pension fund launched by the government, with a public service obligation to support all employers. It is designed to deliver a pension product to employers who are unable to source a qualifying workplace pension scheme elsewhere.
Preferred provider solution
We have conducted analysis of some of the leading Qualifying Workplace Pension Schemes, and based on the simplest process route, and a provider that is non-selective about supporting employers across all sectors, irrespective of the number of employees, staff turnover or earnings, we have identified NOW: Pensions as a scheme we can partner with for simplicity and efficiency of processes.
Full details of NOW: Pensions can be found at www.nowpensions.com
As we will be calculating the contributions that both you, the employer, and the employees will make into the scheme, we will have to include whichever contribution structure you choose into our payroll configuration. It is therefore important that we are made aware of your contribution structure choice as soon as possible. NOW: Pensions provide a choice of five standard contribution models which cover the vast majority of the market. You can find details of these models here.
We envisage that the majority of employers may initially be looking to set up their scheme based on the lowest contribution costs, and in the majority of cases (except for organisations where earnings are largely made up of non-basic salary) this will be based on “band earnings” at an initial contribution of 1% from both employer and employee. This corresponds to NOW: Pensions’ Plan 101.
Band earning thresholds
Lower earnings £5,824 ignore earnings up to this level
Upper earnings £42,285 ignore earnings above this level
Maximum qualifying earnings = £36,561
In this worked example, the total earnings are between the lower and upper earnings thresholds, as such the calculation would be as follows:
Qualifying earnings = Total earnings – Lower earnings threshold = £26,982 – £5,824 = £21,158
Employer contribution = Qualifying earnings x Employer contribution rate = £21,158 x 1% = £211.58 per annum or £17.63 per calendar month, which would be an additional contribution.
Employee contribution = qualifying earnings x Employee contribution rate = £21,158 x 1% = £211.58 per annum or £17.63 per calendar month, which would be deducted from the employee’s pay packet.
This will rise from Oct 2017 to 2% employer and 3% employee
And will rise from Oct 2018 to 3% employer and 5% employee
NOW: Pensions is a multi-employer trust based scheme, and deductions are made from gross pay (sometimes referred to as net pay arrangement) which means no further tax relief claim is required.
Should you wish to contribute at a higher level there are a range of options to select from; NOW: Pensions offers four more standard contribution models in addition to the worked example above.
Use of Postponement
Postponement has some benefits and deficits, and whilst it enables you to defer contributions by up to 3 months from your staging date, this does create a negative impression amongst the workforce. It can be used to align to your pay reference period. Many view use of postponement - up to 3 months - for new starters as beneficial.
We can support the use of postponement however you wish to use it. This must be clearly defined as soon as possible.
Already have other plans?
Should you already have an existing pension arrangement, we would recommend that you ensure that this scheme is fit for purpose. You may wish to seek the help of an adviser as many schemes already in place may either not meet the criteria as a Qualifying Workplace Pension Scheme, or the provider may no longer support all of your employees joining the scheme.
If you wish for us to manage services with an existing or alternative arrangement, we will happily do so at our standard charges below.
Where to go for further information
You may have questions about workplace pensions and your employees saving for their retirement. More information on pensions and saving for later life can be found here.
What happens next?
You can either contact NOW: Pensions to start the process of setting your scheme up or we can fulfil this on your behalf. Ideally this should be completed 3 months in advance of your staging date (postponement does not defer your responsibility to have a qualifying scheme in place). Please notify us once this action has been carried out, at your earliest opportunity.
If you choose NEST as a provider, you should contact them directly.
Our charges for our Auto Enrolment Solution are outlined below:
Scheme set up
We shall liaise with NOW: Pensions and provide them with relevant data to initiate your scheme set up. Once this process is completed, we will forward an email to your designated contact, who holds legal authority to act on behalf of your organisation to electronically transact approval of your participation agreement.
Fixed fee £150
On-going data management via NOW: Pensions portal
In order to both issue and receive data regarding your scheme, and transactional updates at each pay period, we will need to interact with a dedicated web portal NOW: Pensions will be providing for your scheme.
This will include data processing via our payroll software, extracting data and uploading it on an encrypted basis via the web based portal. We will subsequently download encrypted data from the same web based portal and manually update each record within payroll.
Additional charge per payslip £0.50p
Scheme registration and re-registration with The Pensions Regulator
We shall also carry out the completion of the data capture process, and detail your scheme information to The Pensions Regulator as stipulated by the legislation to evidence compliance. This process recurs on-going, to validate that the legislation is being met, and that opt outs are re-enrolled every 3 years.
Fixed fee £100
All fees are exclusive of VAT