Our aging population is already putting strain on state pensions and the government has had to find new ways to ensure we can support ourselves in our old age. Everyone who has paid or been credited with National Insurance contributions will receive the basic state pension currently at £113.10 when they reach state pension age. However with ever increasing costs of living individuals need to ensure that they have sufficient resources to support themselves in retirement. The Government are in the process of making it compulsory for employers of any size to set up a pension scheme that their employees are automatically enrolled in.
What is Auto Enrollment
Auto Enrolment (AE) was introduced in 2012 as a way to ensure people have pensions in place for their retirement. Until now it has been up to employees to decide whether they want to opt into their employer’s pension scheme. However, by 2018 all employers must enrol all eligible employees into a workplace pension. Employees have 3 months after the scheme has been set up to opt out if they do not wish to be included in their employer’s scheme. There are penalties for employers who do not comply once they have passed their staging date (the date the rules become compulsary for your company).
According to The Pensions Regulator “over 1.3 million small and micro employers are due to stage over the next 2 years” Is this you and your business?
The AE process has been staggered according to the number of employees a company has. Since October 2012 larger companies have been automatically enroling their employees into pension schemes. Now is the time for smaller businesses to start planning for AE. By 2016 an average of 45,000 companies per month will be staging.
Employers need to be aware that the process involved in setting up AE can be complex and time consuming, which is why the Pensions Regulator suggest companies make plans in advance.
Does Auto Enrollment apply to me and my business?
There is a misconception among small and micro businesses that Auto Enrolment/Work Life Pensions are just compulsory for larger companies. This is not the case and employers need to be aware that there are large fines in place and The Pensions Regulator is issuing penalty notices to companies that are not compliant.
What happens if I don’t comply?
A penalty notice will be sent out to penalise persistent and deliberate non-compliance. If you don’t comply with statutory notices or there is evidence of a breach of the law a fixed fine of £400 will be issued. An escalating penalty notice can be issued for failure to comply with statutory notices. This is a daily fine of £50 to £10,000 depending on the number of employees. A civil penalty of £5000 for individuals and up to £50,000 for organisations will be issued in cases where you fail to pay contributions due. If an employer fails to comply with a compliance notice or there is evidence of a breach a prohibited recruitment conduct penalty notice will be issued with a penalty of £1000 to £5000 depending on the number of staff you have. The Government aim to fully recover all the penalties they issue.
Even if all your workers inform you that they will opt-out it is still compulsory for you as an employer to have a scheme in place. Remember all eligible employees need to automatically be enrolled into your scheme, and only then will they have 3 months to opt-out.
Each company has been assigned a staging date and has a minimum of one year before this date to prepare. To find out when your company staging date is click on the link below.
In due course the Pensions Regulator will send you a letter informing you of this date.
Owner director companies
If there are only directors in the company, none of whom has a contract of employment then you do not need to set up a Pension Scheme. You will still be issued a staging date and will have to follow the process below which was issued by The Pensions Regulator:
Send an email to email@example.com to confirm to The Pensions Regulator that there are only directors in the company, none of whom are workers for the purposes of automatic enrolment. In your email your will need to state the following:
- I confirm that [company name] is a not an employer for the purposes of automatic enrolment for the following reason – (select one option from the list below):
- a) There is only one director and there are no other staff working for the company.
- b) The only people working for the company are directors and none of them has an employment contract.
- c) The only people working for the company are directors and only one of them has an employment contract.
- d) The company has ceased trading (including date ceased).
- e) If there is some other reason why you believe you do not have any automatic enrolment duties, please provide a brief explanation.
- The letter code for the company is: [The letter code is a 10 digit number which can be found on all letters sent from The Pensions Regulator]
- The PAYE scheme(s) reference is:
- The companies house number (where applicable):
- The name, email address, address and telephone number of contact at the company.
If the company’s circumstances change so that there are at least two people working for the company under contracts of employment (whether directors or other staff) then you will need to inform them of this as soon as possible. With the exception of Directors
ALL EMPLOYEES MUST, BY LAW, HAVE A CONTRACT OF EMPLOYMENT.