Once an employer has determined that there is a duty to auto-enrol an eligible jobholder, the law sets out several steps that employers must take to enrol these jobholders into an Auto-Enrolment scheme.
There is also a time limit for completing the Auto-Enrolment process known as the ‘joining window’. This ‘joining window’ is the one-month period before the eligible jobholder’s Auto-Enrolment date, during which the employer must have:
- Made arrangements to achieve active membership for the eligible jobholder, effective from their Auto-Enrolment date
- Given the eligible jobholder any relevant enrolment information
- Given information to the pension scheme about the eligible jobholder
- Kept all necessary records of this enrolment process.
Once an employee has enrolled onto a pension scheme, the employer must continue to:
- Pay necessary contributions
- Calculate, deduct and pay the employee’s contributions
- Manage any opt-out process should the jobholder decide to leave the scheme
- Keep records of the contributions made.
Postponement or Waiting / Deferral Periods
Employers can operate a waiting period of up to 3 months before auto-enrolling their employees. To do this, an employer must give their employees a deferral notice within 6 weeks of the start of the deferral period. Employers can choose to use different waiting periods for different employees. A typical reason for an employer to use a waiting period is to align enrolment with payroll dates to minimise administrative burdens.
Opting-In / Joining Process
Those employees who earn over the ‘earnings trigger for automatic enrolment’* and are aged between 22 and state pension age (eligible jobholders) must be auto-enrolled into a qualifying pension scheme with effect from the automatic enrolment date. Employers must make the arrangements by which this Auto-Enrolment process takes place
Those jobholders who earn over the ‘lower level of qualifying earnings’* (non-eligible jobholders) can choose to opt-in to the Auto-Enrolment scheme. This is done by providing the employer with an ‘opt-in’ notice. Once this notice has been received, the employer must follow the same process as for the Auto-Enrolment of eligible jobholders.
Those jobholders who earn less than the ‘lower level of qualifying earnings’* (entitled jobholders) can exercise their right to join by giving the employer a ‘joining notice’. Once the employer receives this notice, they must make arrangements for that employee to become a member of a pension scheme – however this does not need to be an Auto-Enrolment scheme or even a qualifying scheme.
Importantly, a worker may exercise their right to join a pension scheme many months, or even years after an employer has issued this employer with their right. At this point, it is vital to keep good records of the opt-in/join request and then decide what category of jobholder is making the request. This will determine which scheme the jobholder is entered into and what steps an employer may take.
*Every year, the Department for Work and Pensions (DWP) reviews the earnings thresholds for automatic enrolment. The latest information can be found on the Pensions Regulator website.
Whilst it is compulsory for an employer to auto-enrol eligible jobholders, on-going membership of the scheme is not compulsory for the jobholder. Eligible jobholders may choose to opt out after they have been auto-enrolled but can then opt back in to the scheme at any time.
Employers must make sure that they have and efficient process to deal efficiently with opt-out requests made by their employees direct to their pension provider.
Employers must check whether the opt-out notice is valid, ensure that the pension deductions and contributions are stopped and refund any contributions to the jobholder.
Employees must contact their pension provider to Opt-Out.
Should an employee choose to stop being an active member of a qualifying pension scheme (by opting out), then they must periodically go through an automatic re-enrolment exercise every 3 years.
Protecting Workers’ Rights
The Workplace Pension Reforms also state various duties and safeguards that employers must adhere to, to protect the rights of individuals. These duties exist before a worker starts employment at a company and once a jobholder is enrolled into a pension scheme.
Importantly, unless a jobholder is already a member of another qualifying pension scheme at their place of work or unless they explicitly ask to leave the scheme (opting-out) then the employer must not take, or fail to take any action that results in either:
- The scheme within which that jobholder is an active member ceasing to be a qualifying scheme, or
- The jobholder ceasing to be an active member of a qualifying scheme.
There are also several safeguards in place to stop employers from inducing their employees to:
- Opt-out without becoming an active member of a qualifying scheme on the jobholder’s respective Auto-Enrolment date.
- Cease to be an active member of a pension scheme without becoming an active member of another scheme.
These safeguards have been put in place to ensure that employers do not attempt to induce their employees to opt out of a qualifying scheme. However, the intention is not to prohibit employers from offering flexible benefits packages or to stop employees from choosing the make-up of any flexible benefits. Crucially, an entitled jobholder should only make the decision to opt out or leave their current pension scheme of their own free will and without any influence from their employer.
Employers should note that under no circumstances should they attempt to deter job applicants or screen out job applicants based on their potential pension scheme membership.
Keeping Sufficient Records and Information Requirements
All information given to relevant parties throughout the Auto-Enrolment process must be given in writing. Simply directing an eligible jobholder to a website or phone number for information is not acceptable. Whilst an independent financial adviser or benefit consultant can send the relevant information, it is always the employer’s responsibility to ensure that this information is correct, complete and on time.
Under the workplace pension reforms, there are also several employers’ duties regarding what records must be kept. Whilst ensuring that employers are complying with all their duties, the records will also help employers to avoid/resolve disputes with employees and check what contributions have been made to the pension scheme.
Doing nothing is not an option. The Pensions Regulator is responsible for educating employers and ensuring that all employers meet their legal obligations with regards to the Workplace Pension Reforms. Those employers who continually fail to meet their obligations are likely to face substantial fines and, in the worst cases, imprisonment.
Full details regarding the penalty regime can be found on the Pensions Regulator website.
- Fixed Penalty Notices (FPNs)
These may be issued when there has been a failure to comply with a statutory notice or there is sufficient evidence that a breach has been committed. The FPN is for a fixed amount of money (£400) which needs to be paid within a specified period. If the employer fails to pay a financial penalty and remedy the breach, in certain circumstances the regulator may consider further action in relation to wilful non-compliance which may ultimately lead to prosecution
- Escalating Penalty Notices (EPNs)
These may be issued when there has been a failure to comply with a statutory notice. The regulator may issue escalating penalties at a prescribed daily rate, ranging between £50 and £10,000 (dependent on the number of persons the employer has). Should an employer fail to pay a financial penalty and remedy the breach, in certain circumstances the regulator may consider further action in relation to wilful non-compliance which may ultimately lead to prosecution.
CONTACT DETAILS FOR FURTHER ADVICE:
Contact Mitchell Charlesworth’s Pensions and Investments division for further advice regarding your pension scheme obligations and Auto-Enrolment.
For advice regarding the administration of Auto-Enrolment and your payroll requirements, contact Mitchell Charlesworth Payroll Services.
Should you have any queries or would like further advice about meeting your Auto-Enrolment obligations, do not hesitate to contact Ashley Bellis or our other Auto-Enrolment specialists to the right of this page.