How does auto enrolment work?

Posted on Posted in Payroll & Pension

Ever since I heard about the penalties associated with Auto Enrolment of Workplace Pensions, I was a bit worried about my client base. Back in December 2014, I prepared a simple spreadsheet listing all my payroll clients. Added a column next to it to write down the letter code and the third column to write down their staging date. Only 4 out of 22 clients had a staging date in 2016 whereby, one was as early as January 2016. So, I knew that I had to act fast.

 

I used to read on online accounting forums and the pension regulator’s website. I also attended a couple of webinars here and there. I was equipped with information. (Lots and lots of information). I was overwhelmed with the newly added duties for employers due to this new legislation that small employers are facing. Now, it was a time to put the action plan.

 

Based on the guidelines issued by the pension regulator and various government pension scheme providers, I decided to stay focused on three main activities which helped me simplify the whole pension enrolment process.

  1. Assessment
  2. Communication
  3. Enrolment

 

Assessment : 

Assessment starts with the business assessment. First of all, determine, if the business has a pension scheme in place. Since most of my clients are small businesses, they normally do not have any existing pension scheme in place. Hence, the first step is to register a new pension scheme. NEST which has been set up by the government does not involve any setup fees so, it is the most favourite scheme chosen by my clients. Personally, I like the simplicity of its online platform and ability to see all my clients at one place.

 

This business assessment is then followed by an initial assessment of existing employees on a provisional basis. As per the rules, this assessment should happen on the staging date. But, I personally believe that early start should be more useful. Also, NEST requires that any employees that are being enrolled on NEST should have been notified in advance. This is the phase where a care should be taken by anyone handling the process. Based on the age and earnings of the employees, a suitable communication is needed in next step so, carefully assess the age and earnings of the employees.

 

Here is my review of the assessment process. In this process, you need to ascertain the age of the employee first and then start the assessment asking few simple questions.

 

For employees of Age between 22 and SPA (state pension age), ask following questions. 

Q:1  – Does the Employee Earn more than £10,000 p.a.?

Yes – Automatically enrol

No – Go to question 2

 

Q:2  – Does he earn more than £5824?

Yes – You MUST give him an information about his right to opt-in.

No – There is no statutory duty of any sort of communication with the employee but, it will be a good idea to inform about the pension scheme.

 

For employees of  Age between 16 and 21, ask following questions. 

 

Does the Employee earn more than £5824 p.a. ?

 

Yes – You MUST give him an information about his right to opt-in.

 

No – There is no statutory duty of any sort of communication with the employee but, it will be a good idea to inform about the pension scheme.

 

For employees of  Age between State Pension Age (SPA) and 74, ask following questions. 

 

Does the Employee earn more than £5824 p.a. ?

 

Yes – You MUST give him an information about his right to opt-in.

 

No – There is no statutory duty of any sort of communication with the employee but, it will be a good idea to inform about the pension scheme.

 

For employees of  Age 15 or younger and 75 or older

 

No duties are applicable.

 

In summary, Automatic Pension kicks in if the employee is aged between 22 and SPA and earning more than £10K per annum.

 

In order to see the above information in a flowchart please click here

 

Communication : 

Once you have assessed your workforce for auto-enrollment for workplace pensions, you need to communicate with your staff. As an employer, it is your statutory duty to inform your workers about pension arrangements.

 

If an employee is being auto-enrolled in a pension scheme you can issue a letter like this

 

If you need to give your employee an information about his right to opt-in, you can issue a letter like this

 

Enrolment :

 
You will need to check with your pension scheme as to how to enrol your workers.