All about automatic pension enrolment

Emma King, PartnerSarah Franklin, Partner4 October 2012

Agenda

• When, who, what?

• Topical issues

• Things to do

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When? • Auto-enrolment introduced gradually - larger

employers first; smaller employers later

• ‘Staging date’ determined by number of people in employer’s PAYE payroll scheme on 1 April 2012

• See www.tpr.gov.uk/staging

• Employers can bring staging date forward

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Who?

1. Enrol “eligible jobholders” automatically into an automatic enrolment scheme

2. Pay minimum DC contributions or provide minimum DB benefits

3. Re-enrol eligible jobholders who opt-out approx every 3yrs

4. Keep records

5. Not induce opt-outs

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Waiting period - postponement

• Employers can operate waiting period of up to 3 months by giving notice (within 1 month)

• May help with:– casual/seasonal workers– temporary workers– quick leavers– alignment of auto-enrolment with payroll

• Jobholders’ right to opt-in

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Summary of worker categories

Earnings Age 16-21 Age 22-SPA SPA- age 75

£8,105 or more

Non-eligible jobholder – may opt-in to an automatic

enrolment scheme

Eligible jobholder – must

be auto-enrolled into an automatic enrolment scheme

Non-eligible jobholder –

may opt-in to an automatic enrolment scheme

£5,564 - £8,105

Non-eligible jobholder – may opt-in to an automatic enrolment scheme

Less than £5,564

Entitled worker – can request to join a pension scheme (but it does not have to be a qualifying

scheme and not entitled to employer contributions)

What?

An automatic enrolment scheme:

• must be a qualifying pension scheme, and

• must not contain any provisions which:

– prevent the employer fulfilling its auto-enrolment and re-enrolment duties, and

– require a member to make a choice or provide information

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Options

• DB

• DC

• NEST (or similar)

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Topical Issues

• Types of worker

• Contractual enrolment

• Opting-out

• Salary sacrifice

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Types of worker• Agency workers• Casual workers/zero-hours contractors• Overseas workers• Consultants• Multiple contracts of employment• Fluctuating earnings

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Contractual enrolment

• Where employer enrols workers into a pension scheme pursuant to a contractual agreement

• Legal duty under s3 PA2008 does not apply, so:– no statutory right to opt-out– more limited information requirements

• Reduces need to treat different workers differently

• May work better with enrolling everybody

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Opting-out

• Eligible jobholders and non-eligible jobholders who opt-in can opt-out within 1 month and receive a refund of their contributions, but:– not before they have been auto-enrolled– opt-out paperwork must come from scheme– employer must not incentivise opt-outs– employers must re-enrol every 3 years

(within 6 month window)

• Can leave scheme after statutory opt-out window

• Beware workers with enhanced/fixed protection!

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Salary sacrifice

• Salary sacrifice arrangements can be continued

• Care needs to be taken to ensure that it is valid and implemented consistently with the employer’s automatic enrolment duties

• HMRC has issued guidance on opting out, and has confirmed there is no longer a requirement for the arrangement to be in force for 12 months

Things you need to do

• Check self –employed arrangements• Check agency / secondment agreements• Set up procedures to track variable earnings• Sort out approach on salary sacrifice / flex• Deal with enhanced / fixed protection workers• Allow lead times for contractual AE

Useful links

• The Pensions Regulator’s ‘Pensions reform & auto-enrolment’ homepage - http://www.thepensionsregulator.gov.uk/pensions-reform.aspx

• The Pensions Regulator’s detailed auto-enrolment guidance - http://www.thepensionsregulator.gov.uk/pensions-reform/detailed-guidance.aspx

• The Pensions Regulator’s ‘Staging date timeline’ - http://www.thepensionsregulator.gov.uk/pensions-reform/staging-date-timeline.aspx

• The Pensions Regulator ‘How to bring your staging date forward’ - http://www.thepensionsregulator.gov.uk/pensions-reform/bringing-staging-date-forward.aspx

• Follow us on twitter @pensionlawyers and @ready2autoenrol

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Any Questions?