What Is Auto Enrollment?

Auto enrollment legislation means that all UK employers with one or more employees must enroll into a workplace pension scheme to meet their duties under the pensions act.

In the past it was up to workers to decide whether they wanted to join their employer’s pension scheme and obviously many companies didn’t provide a pension scheme. By 2018, all employers will have to automatically enroll their employees into a workplace pension scheme unless the worker individually opts out.

The government aim is by 2018 there will be an estimated 9-11 million employees enrolled into a work pension scheme and as a result, many more people will be able to build up savings to help cover their retirement needs.

Are All UK Businesses Affected?

Auto-enrollment applies to nearly all employers in the UK. However, it doesn’t apply to the ‘genuinely’ self-employed.  Limited companies, with a sole director, are excluded – but as soon as the company takes on an employee, both the director and the employee must be enrolled.

When Does Auto Enrollment Start?

Automatic enrolment is being introduced in stages up until 2018. The largest employers started first, followed by medium-sized companies and then small employers. All currently trading companies need to comply by April 2017.

Who Will Be Automatically Enrolled?

Employers will have to enrol their full time or part time employees into a workplace pension scheme if they:

Are not already in a suitable workplace pension scheme

Are at least 22 years old, but under State Pension age

Earn more than £10,000 a year – in the tax year 2016-17 and work in the UK

What do businesses need to do to comply with the law?

Businesses need to:

Automatically enroll employees who meet the criteria into a qualifying workplace pension scheme by April 2017

Enroll any other employees who ask to join

Communicate with their workforce to let them know what’s going on

Make contributions for certain members of their scheme

Remove contributions for any automatically enrolled employees who opt out of your scheme

They also need to:

Submit a declaration of compliance to The Pensions Regulator and continue to check the rest of their workforce to see if they need to contribute for them.

Keep records and re-enroll employees who’ve opted out every three years.

What happens if a business fails to meet the deadline or doesn’t enroll?

The legal obligation to meet the auto enrollment deadline rests with the employer. The Pensions Regulator has the power to enforce the legislation and if an employer does not meet the auto enrollment requirements the employer can be fined.

What penalties might occur if a company doesn’t comply on time?

The Pensions Regulator can issue a fixed penalty notice and fine employers £400 if businesses don’t comply with a statutory notice or if there’s sufficient evidence of a breach of the law.

The Pensions Regulator can also issue an escalating penalty notice for failure to comply with a statutory notice. This penalty has a prescribed daily rate of £50 to £10,000 depending on the number of staff you have.

They can also issue a civil penalty for cases where you fail to pay contributions due. This is a financial penalty of up to £5,000 for individuals and up to £50,000 for organisations.

Where employers fail to comply with a compliance notice or there is evidence of a breach, they can issue a prohibited recruitment conduct penalty notice. This penalty has a prescribed rate of £1,000 to £5,000 depending on the number of staff the employer has.

Can a business owner enroll themself?

Yes, they can do, but it’s a complicated process. Recent research from NOW pensions shows that 37% of employers are approaching their financial advisor or pensions provider.

What benefits are there for a business in using a Financial Advisor for their Auto Enrolment?

A financial adviser will help you by examining your needs and researching the market to find a suitable qualifying workplace scheme. They will help you assess your workforce, set up contribution plans with the Pension Company and give advice on any software you may need to manage your workplace pension.

If you would like to know more about auto enrollment and how to avoid being fined by the pension’s regulator, please contact Matt Begley at Harris Begley on 01736 366550 or email enquiries@harrisbegley.co.uk

Auto enrolment is not regulated by the FCA.

The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.

Tax treatment varies according to individual circumstances and is subject to change.