Automatic Enrolment by Bryce Paling

Many small employers remain unaware of their automatic enrolment pension obligations.

Automatic enrolment started in 2012 and is now halfway through a process which obliges every employer to automatically place their employees into a workplace pension scheme. But despite its success so far, there are concerns that the biggest challenges are yet to come.

More than five million workers have so far joined the scheme. But that figure doesn’t tell the whole story – as these are from the largest companies, only 3% of employers have so far automatically-enrolled their staff.

The huge majority of employers are still to go through the process. Between now and 2018, over three million more workers will be enrolled by smaller employers.2 Ros Altmann, the government’s pensions minister, has warned, “It will be a much tougher ask to make auto-enrolment work for everyone.”

“Qualifying” Registered Pension Scheme…, not just a Registered Pension Scheme!

The starting point is that nearly all UK ‘jobholders’ including someone who would otherwise be self-employed with an employer who are not already members of a Qualifying Scheme are eligible and must be auto enrolled.

·         The employer can choose not to enrol workers if they are under the age of 22 or over State Pension Age.

·         Individuals below the age of 22 or between State Pension Age and 74 can ask to be admitted, in which case the employer must contribute if the individual’s earnings are £5,824pa or more. (2015/16)

·         If a worker earning less than this asks to join, the employer is not obliged to contribute.

·         The employer may also exclude workers earning less than an earnings trigger in each pay reference period.

·         Depending on the structure of pay reference periods, the earnings trigger will be £192 if workers are paid weekly, £833 monthly and £10,000 annually for 2015/16.

The worry stems from concerns that many ‘micro employers’ are unaware of their pension contribution obligations. Whilst similar to an employer’s responsibility to deal with National Insurance and Income Tax, many smaller employers remain confused as to their automatic enrolment duties.

If you employ anyone, even just one person and pay them at least £192 a week or £833 a month, you will need to comply with automatic enrolment rules. Failure to follow the rules could lead to a £400 fine; and continued failure to comply has already resulted in daily fines of between £50 and £10,000 depending on the severity of the breach.

There is a real danger of many people leaving it until the last minute before taking action micro employers should start preparing for automatic-enrolment now and be seeking professional advice in good time if they are unsure of their new responsibilities.

Penalties and Fines

The Pension Regulator will have the ability to impose penalties and fines if an employer does not comply with their staging date and ongoing duties. These include:

·         A fixed penalty of £400 where an employer fails to respond to a warning notice. A warning may be given (for instance) where an employer is accused of offering inducements to encourage members to opt out or leave the scheme.

·         An escalating penalty of £50 to £10,000 per day (depending on the size of the employer) for example where an employer fails to pay contributions to the scheme on time (i.e. by the 19th of the following month).

·         A fixed penalty of £1,000 to £5,000 for prohibited recruitment conduct, for example where an employer screens job applicants for their intention to join the scheme.

Automatic enrolment is here to stay for the foreseeable future but rather than a bureaucratic pain, once the system has been set up, focus can return to issues like profitability, efficiencies, customer relationships, economics, existing markets, new markets, cash flow, financial goals, and of course the Christmas party!

To receive a complimentary guide covering wealth management, retirement planning or Inheritance Tax planning, contact Bryce Paling on 01403 824192 or email bryce.paling@sjp.co.uk

- Bryce S Paling MBA DipPFS

  Director of BP Wealth Management Ltd