Automatic enrolment (or AE for short)

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The Chartered Institute of Payroll Professionals

Friends of automatic enrolment

We’re in

99,000 employers are due to stage January – March 2016 alone, so you may find yourself in a queue if you leave it late!

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Contents

New to pensions or AE? What will your approach to AE be? 3

Choosing and establishing a pension scheme - what will your approach be? 3

What is the minimum an SME or micro employer has to do to ensure compliance with AE regulations? 4

When you need to do it 5

What data is needed? 5

What else should an SME or micro employer be doing to safeguard their employees in relation to their pensions? 5

What do good employee outcomes look like? 6

What next? 7

What if your business does not comply? 7

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New to pensions or AE? What will your approach to AE be?

Will you promote the introduction of AE to your staff as a positive benefit that is crucial to supporting them in later life and will enhance your position as their employer?

Or do you see this as just another challenge which has to be overcome at the lowest cost and the least effort?

Whichever approach you take there are duties and responsibilities you have as an employer, not only in meeting the AE requirements but also in monitoring the scheme you choose over time to ensure it delivers for your employees. Your staging (go live) date is just the start of your journey.

Choosing and establishing a pension scheme - what will your approach be?

For those who are willing and able to pay for advice to get your employees automatically enrolled you can choose between professional advisers - an accountant, an employee benefits consultant, an IFA or a payroll bureau - to guide, or even project manage you through the AE staging process. But don’t assume that your accountant or payroll provider will do this without checking with them first.

If you are considering a DIY approach there is a plethora of information available to support you. We recommend you go to The Pensions Regulator site first. The links on this page should help direct you to key information.

AE is not a simple process, particularly for smaller employers new to pensions and that is why planning ahead is key. As an employer, you are choosing the pension scheme into which your employees will be enrolled and in which they could be saving towards their retirement for years – a significant responsibility. For example, it is vital that you understand whether the type of pension scheme you choose will give tax relief at source or through net pay, as workers who are not paid above the tax personal allowance could be deprived of tax relief.

Choosing and setting up a pension scheme and enrolling your staff is just the beginning. The role of the employer in the ongoing monitoring of your pension is central to ensuring good outcomes for your employees.

The decisions you need to make/things to check:

● What will be your approach?● Who will be your point of contact with The Pensions Regulator?● If you already have a pension scheme in place is it a qualifying workplace pension scheme?● What type of workplace pension scheme will you choose – master trust or personal pension?● What salary definition will you elect to base contributions on?● Are there employees you should postpone enrolment for?● Will your payroll system cope?

What is your staging date?

www.tpr.gov.uk/employers/staging-date.aspx The Pensions Regulator ‘s Essential Guide to AE:

http://www.thepensionsregulator.gov.uk/employers/the-essential-guide-to-automatic-enrolment.aspx

What you have to do to comply with the AE regulations:

www.tpr.gov.uk/employers/your-step-by-step-guide-to-automatic-enrolment.aspx

The Pensions Regulator ‘s Quick Guide to Selecting a Pension Scheme for AE:

http://www.cipp.org.uk/filemanager/root/site_assets/documents/tpr_quick-guide-select-pension-automatic-enrolment.pdf

http://www.thepensionsregulator.gov.uk/employers/choose-a-pension-scheme-or-check-your-existing-one.aspx

For those new to pensions or AE, this page directs you to

information on:

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What is the minimum an SME or micro employer has to do to ensure compliance with AE regulations?

Put simply you have to:

● Automatically enrol eligible workers

● Set up a qualifying pension (when you have eligible workers or they want to join)

● Inform your workforce about AE and, if using postponement, send out postponement notices

● Allow non eligible workers to join a scheme

● Manage opt-outs and refunds in the opt-out period

● Deduct and pay the appropriate minimum employee and employer contributions into the scheme, based on the salary

definition you have chosen

● Complete a declaration of compliance for The Pensions Regulator

● Automatically re-enrol eligible workers every three years and complete a re-declaration of compliance

● Keep records

● Make timely payments of pension contributions to your pension provider

● You may also have to complete a pension self certification form on occasion (although your pension provider can

advise you on this) and issue postponement notices in some circumstances. So, not that simple ……

As an employer you should start by setting your firm’s objectives – are you just going to do the minimum needed to comply – or will you take this as an opportunity to provide good benefits to your staff and encourage their loyalty ….

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When you need to do itThe links to The Pensions Regulator’s website, particularly the action planner ‘start planning now’ (http://www.thepensionsregulator.gov.uk/employers/planning-for-automatic-enrolment.aspx), give you a better idea of the steps you need to go through before staging which, in an ideal world, should start 12 months before your staging date.

Apart from ensuring that your new pension and payroll are set up and your employees receive the necessary communications, a good reason for preparing early is that 99,000 employers are due to stage January - March 2016 alone so you may find yourself in a queue if you leave it late!

12 MONTHS BEFORE STAGING

6 MONTHS BEFORE STAGING

ON YOUR STAGING DATE

AFTER STAGING3 YEARS FROM

THE STAGING DATE

Know your staging date

Choose a pension scheme

Assess and enrol your staff

Complete the declaration of compliance

Re-enrolment

Provide a point of contact

Check your records and payroll process

Write to your staff Re-declaration of compliance

Check who you will need to enrol

Understand your ongoing duties and

responsibilities

Set your objectives

Create your action plan

Work out the costs

What data is needed?

The automatic enrolment process requires accurate information on your employees in order to calculate whether your workers are eligible, non-eligible or entitled to join a pension scheme. Don’t be concerned at this time about what those terms mean - the important thing to understand is that each worker will need to be assessed against certain criteria, and some payroll or pension software may automate this process.

Missing or inaccurate data could cause errors, delays and extra work and that means more cost for you. It is also worth noting that by putting all your data in order you will be helping to keep the costs of implementing automatic enrolment for your business as low as possible.

What else should an SME or micro employer be doing to safeguard their employees in relation to their pensions?SMEs and micro employers are not expected to be pension experts, or to employ pension consultancies, investment analysts, or have actuarial skills to be compliant with AE or to run a good quality pension scheme. The AE solutions available are packaged pension products that include these functions.

In selecting a packaged AE solution for your employees, you need to take into account the makeup of your firm’s staff, their ages and their views on investment, especially with regards to the suitability of the default fund for your staff, which in practice over 80% of members typically stay invested in.

It is important that you regularly review the suitability of your pension to ensure that your employees are getting good outcomes.

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What do good employee outcomes look like?

At a very high level, The National Association of Pension Funds suggests that good outcomes include:

an adequate retirement income

a private pension that matches pensioners’ changing income needs as they move through retirement; and

a private pension that is secure, with the member safeguarded against risks such as the collapse of their pension provider

If these very high level objectives are to be achieved, then members and those running their pension schemes have to get a series of decisions right – contributions levels, investment and the way their workers are likely to draw pension benefits in retirement.

Who is responsible for checking ongoing pension scheme suitability?As the employer you will be responsible.

In addition to remaining AE compliant, there are three key aspects of running a pension that an employer should monitor:

1 – Communications – do your employees receive sufficient information in their first language on which to base key decisions – to understand how their money will be invested; whether contribution levels are at a level that will generate an adequate income in retirement; whether investment choices are appropriate to the level of risk they are happy to take on? Is this information explained simply in a range of media that suits your staff?

From an employer’s perspective there are mandatory AE communications and here is a link to these letter templates http://www.thepensionsregulator.gov.uk/writing-to-your-clients-staff.aspx.

2 – Operations – are employees being enrolled correctly and on time; are contributions being correctly deducted and applied; is the pension provider giving effective and efficient service, providing sufficient member information in an appropriate format to keep you and your members informed? Can your pension provider be contacted easily?

And are you meeting your statutory duties as an employer?

3 – Investment – do the investment choices and especially the default fund continue to suit your staff? Are the investment choices offered in line with how much risk your staff are happy to take on? Does your scheme need to offer sharia or ethical funds for your staff to invest in?

Other specific areas to monitor include whether the pension contract continues to offer value for money; good outcomes for your employees, and whether the pension is meeting your firm’s objectives.

The Pensions Regulator:

The regulator’s AE website:

www.tpr.gov.uk/automatic-enrolment.aspx

AE Detailed Guidance (the ‘encyclopedia of AE’, if you need the detail):

www.tpr.gov.uk/doc-library/automatic-enrolment-detailed-guidance.aspx

AE Pension Star Ratings

http://defaqto.com/star-ratings/auto-enrolment-ratings

and good outcomes for your employees depend on:

● Appropriate contribution decisions● Appropriate investment decisions● Efficient and effective administration● Protection of assets● Value for money● Appropriate decisions on how workers take their pension benefits

Sources of information

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Who is accountable for ongoing compliance with AE regulations? As employer you are accountable, even if the work is delegated.

Who is responsible for ongoing governance of the pension scheme? The pension provider is responsible.

The master trust solutions for AE are set up under a trust and are overseen by trustees whose role is to look after the members’ best interests, and whose roles and responsibilities towards the members are laid down in law. The trustees decide the investment strategy, choose the funds, and have the ongoing governance responsibility of ensuring that the investments continue to be appropriate and perform as expected. Master trust solutions for AE include names such as NEST; NOW: Pensions; The People’s Pension; and Trust Pensions to name just a few.

Some insurance companies offer workplace pension schemes for SMEs and micros – brand names you and your employees will recognize such as Aviva, Scottish Widows and Standard Life. Their AE solutions for SME and micro employers will be based on personal pension contracts where the employee is the policy holder (hence these are known as contract based schemes). These schemes are sponsored by the employer, but the member makes the investment choice or opts for the default.

What next?Consider your approach to pensions and AE: whether you want to make this a positive and valued experience, not just for your employees, but also for the business in promoting recruitment and retention; are you willing and able to pay for advice to get your employees automatically enrolled or will this be a DIY exercise?

Review the decisions you need to make and the things to check list above and refer to The Pensions Regulator’s website for further information at

www.tpr.gov.uk/employers/your-step-by-step-guide-to-automatic-enrolment.aspx

What if your business does not comply?The Pensions Regulator will come knocking……

Failure to comply will lead to a statutory notice and then a fixed penalty fine (set at £400) if the issue is not resolved. If an employer continues to not comply the regulator can issue escalating fines. For an employer with 1-4 staff this will be £50 per day and for a company with 5-49 staff it is £500 per day. The best way to avoid these penalties is to start to plan early and to begin your Declaration of Compliance (DoC) as soon as you can. The DoC must be completed within five months of your staging date and all postponements applied at your staging date must have finished before you complete it.

NB - You can start completing your Declaration of Compliance early and save your progress as you go.

● More information on penalties(http://www.thepensionsregulator.gov.uk/employers/what-happens-if-i-dont-comply.aspx)

● Start your declaration of compliance (https://www.autoenrol.tpr.gov.uk)

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