Auto-enrolment: A step-by-step guide
Auto-enrolment legislation requires all UK employers to automatically enrol their eligible employees into a suitable pension scheme and to contribute towards the employee’s pension savings. Those eligible are aged between 22 and State Pension age, earn more than £10,000 a year and work in the UK.
Step 1: Know your Staging Date
Each employer is allocated a staging date and full compliance with auto-enrolment duties must take place no later than that date. The Pensions Regulator will write to an employer at least 12 months before the deadline. But it’s a good idea to know when your staging date is as early as you can. You can find out by visiting the Pension Regulator’s website – www.thepensionsregulator.co.uk
Step 2: Assess the likely impact for your organisation
Ideally, you should start planning for the changes at least six months before your staging date. Begin by finding out what will be the likely financial and administrative impact?
According to the Pensions Regulator, you must think about the one-off costs of setting up auto-enrolment as well as the ongoing cost of paying money into the scheme and managing the process.
You can carry out these enrolment tasks yourself but you may also choose to ask for extra support from advisers.
According to figures from the regulator based on employers with between one and four staff members, costs ranged between £200 and £1,000 for general advice and support to set up for enrolment. This can include choosing a scheme, working out who to put into the scheme and setting up payroll.
Whether you manage payroll yourself or someone does this for you, you will need to find out what automatic enrolment tasks payroll can help you with and whether it will provide all the information that your pension scheme provider needs. According to the regulator, if your payroll is run by an accountant, bookkeeper or payroll agency you will need to check if they will include automatic enrolment in their current charges or if you will have to pay extra. Small employers said if they did pay extra, overall this set-up cost was between £100 and £400.
If you manage your own payroll and use payroll software, find out if it can already work with automatic enrolment.
There are some pension schemes aimed at small employers that do not have set up or monthly charges for automatic enrolment, while other schemes may charge. Some schemes may also manage some or all of the automatic enrolment tasks for you.
You should ask the provider what they will charge you based on how many staff you have and decide which charging method is best for you. You should also ask the provider what charges the scheme members will pay.
The National Employment Savings Trust (NEST) is a pension scheme provider that has been set up by the government and must accept all employers that apply to use it for automatic enrolment. They do not have a set-up charge.
An employer also needs to pay money into the pension scheme, after you've put your staff into it and every time you pay them. This is known as 'making contributions'.
The total minimum contribution until April 2018 is equivalent to two per cent of an employee’s gross earnings. The employer must pay at least one per cent of this, but can choose to pay the full amount.
Step 3: Communicate the changes to staff
For workers who need to be auto-enrolled, an employer must provide information within one month of the date of auto-enrolment. It should include basic information on the scheme such as contributions payable. Employers must also tell the staff about the right to opt out and to opt back in again at a later date.
Those under 22 or over state pension age who pay tax and whose earning fall short of the minimum must be told they can join a qualifying pension scheme if they want to. The employer may instruct a third party to provide the information to workers but it is still the employer's responsibility to check that the information provided is correct and that any deadlines are met. Ongoing communications, such as opting in new employees, must also be managed.
It is advisable though for employers to engage with employees earlier in the planning process. Filter through messages around why saving for retirement is important and what enrolment means for them. Details of where they can find out more will also be helpful.
Do this through intranet articles, email alerts and posters.