Avoid £5k per day fines, auto-enrolment not a once and forever task
By February 2018, all UK employers will have passed their first staging date and should have auto-enrolled all of their “eligible jobholders” into a pension arrangement. However, it is important to remember that auto-enrolment is not a “once and forever” task.
Even when the initial phase of auto-enrolment is complete, employers still have ongoing legal and compliance duties. This is important as the Pensions Regulator is actively policing compliance in this area. In the first quarter of 2017 alone it issued 4,673 fixed penalty notices, 1,043 escalating penalty notices (which can accrue on a daily basis at up to £5,000 per day) and 227 inspection notices (enabling it to attend and inspect premises) in cases of non-compliance.
To avoid this, employers should put in place appropriate systems and processes.
Who needs to be automatically enrolled?
The Pensions Act 2008 requires employers to auto-enrol a worker who is “ordinarily working” in the UK. In most cases, it will be easy to determine whether someone is a worker from their terms of employment. However, if your organisation employs non-regular categories of staff, such as self-employed or agency workers, each of these should be looked at individually to determine whether they have “worker” status and a lawyer can be used to confirm this if required. Also, the fact that you need to auto-enrol workers “ordinarily working” in the UK means that you may have to auto-enrol foreign nationals who work in the UK, as well as UK nationals working overseas on a temporary basis.
What are the notification obligations?
Employers must register with the Pensions Regulator within five months of their staging date to confirm that they have complied with their auto-enrolment duties. They must then provide a re-declaration of compliance within three months of the three year anniversary of their staging date.
The responsibility for submitting these declarations to the Regulator sits with the employer (although an adviser can make the submission on their behalf), and this can be done via an online portal. The information the employer has to provide includes the employer’s details, the type of pension scheme it uses for auto-enrolment and the number of staff who are being put into a pension scheme. A checklist setting out the information which the employer needs to provide is available on the Regulator’s website.
Importantly, the Regulator has issued significant fixed and escalating penalties where employers have not submitted declarations as required. So even though this is a purely administrative compliance issue, significant costs can arise if an employer gets it wrong.
Monitoring changes of worker status
The good news for employers is that not all workers have to be auto-enrolled. Only those that are "eligible jobholders" i.e.workers with earnings of over £10,000 a year who are aged 22 to state pension age. Workers in this age group who earn less than £10,000 but over £5,876 (known as "non-eligible jobholders") have no right to auto-enrolment, but they may opt in to the pension and their employer must then pay contributions on their behalf. There is also a third category of workers who fall outside these age and earnings thresholds, known as “entitled workers”. They have the right to opt in to membership but their employer does not have to pay contributions on their behalf.
Importantly, workers can move between these bands as they move through the course of their working life. Therefore, as part of an employer's three year re-enrolment cycle for any individuals who have opted out of membership, we recommend they put in place arrangements to monitor and process changes to jobholder status to ensure each worker is provided with pension benefits in line with the particular rules applicable to them under the Pensions Act.
Managing HR processes
It is crucial that employers make sure that their HR processes are managed correctly. As far as pensions are concerned, they should ensure that their systems are aligned with their pension scheme provider’s so that contributions are correctly deducted from salary, sent to the provider in the appropriate time frame and any benefits (such as death benefits) are paid quickly.
Employers should also make sure that they are prepared for the phased increase in minimum auto-enrolment contributions. Currently, most employers are just paying minimum contributions of 1% of earnings, which will increase to 2% by April 2018 and 3% by April 2019.
If any workers have opted out of auto-enrolment, then they will need to be re-enrolled on a three year rolling cycle from the employer's staging date.
What protections do workers have?
Employers should be aware that there are protections for workers designed to prevent employers circumventing or avoiding their auto-enrolment duties.
Employers must not engage in prohibited recruitment conduct, for example asking someone at interview whether they intend to opt out of the pension scheme. This includes avoiding asking any questions or making any statements during the recruitment process which might suggest that a candidate's success may depend on whether they opt out of auto-enrolment.
Similarly, employers must not offer workers inducements to opt out of auto-enrolment or to stop being a member of the pension scheme.
Workers also have the right not to suffer a detriment as a result of exercising their auto-enrolment rights. For example, it would be unlawful for an employer to refuse a pay increase in order to offset the costs of auto-enrolment. Dismissing a worker for exercising auto-enrolment rights is automatically unfair.
We strongly recommend that employers ensure that their HR teams and managers are appropriately briefed on auto-enrolment rights and protections, so as to avoid fines from the Regulator, potential criminal proceedings and claims from workers.
If they have not done so already, employers should review their standard terms and conditions for new joiners to reflect auto-enrolment, and in particular so that they have some flexibility to alter their pension arrangements (subject to compliance with auto-enrolment) in the future.
Do get in touch if you would like to discuss any of the issues raised in more detail.
The articles published on this website, current at the date of publication, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your own circumstances should always be sought separately before taking any action.