You may have heard about changes to the law for workplace pensions. You may have even heard the term ‘automatic enrolment’. But do you know which of your workers are affected?
Graham Vidler, director of communications and engagement at NEST, explains how you can work out which workers you have a legal duty to enrol.
Has your business begun planning how to meet your automatic enrolment duties? The first stage is to work out your staging date, which is when the duties will affect your business. You can find that out at the Pension Regulator’s website and from that you can determine when you need to start implementing changes. NEST recommends you give yourself 8-12 months to get ready.
It is important to work out which workers are affected whatever stage you are at. Assessing your workforce helps with your financial planning or, if your staging date is looming, it identifies exactly who you need to enrol and who you need to make contributions for.
For the purposes of automatic enrolment there are 3 types of workers; workers without qualifying earnings, eligible jobholders and non-eligible jobholders. But let’s start at the beginning… What does the term ‘worker’ mean under the new legislation?
A worker is someone who works under a contract of employment or has a contract to perform work or services personally and is not undertaking the work as part of their own business. To be considered a worker and assessed for automatic enrolment your employees must meet these criteria.
Workers without qualifying earnings (also known as entitled workers) are aged 16 to 74 years old, working in the UK and earning below £5,688 (2013/14) a year. If you employ any workers who fit this description then they have a right to join the workplace pension scheme you choose to meet your automatic enrolment duties. You do not need to automatically enrol them in a scheme and you do not need to pay contributions on their behalf (although you can if you want to), but if they ask to join you have to sign them up and take contributions from their pay. They will still be eligible for tax relief on their pension contributions and may decide to join at any time.
There are two types of non-eligible jobholders, the first are aged 16-21 or state pension age to 74, working in the UK and earning above £9,440. The second type of non-eligible jobholders are aged 16-74 working in the UK and earning more than £5,688 but below £9,440 (2013/14). If any of your workers fit into this category then they have a right to opt in. This means that you do not have to automatically enrol them but they can ask to join the scheme at any time. If they do ask to join the scheme, then under the new legislation you must enrol them and make employer contributions on their behalf.
The final type of worker is the eligible jobholder, these are the people that are most affected by automatic enrolment. They are aged 22 to state pension age, work in the UK and earn above £9,440. You must automatically enrol these workers into a qualifying pension scheme and make employer contributions on their behalf. Eligible jobholders cannot choose not to be enrolled, once enrolled they can choose to opt out but they must be automatically enrolled in the first instance.
Knowing the different types of workers and your responsibilities to each of them makes planning for automatic enrolment easier. You can work out who is affected, how you are going to communicate the changes to them and the financial implications for your business.
Why is this useful?
Karen Thomson, the Associate Director Policy, Research & Strategic Visibility at the Chartered Institute of Payroll Professionals (CIPP), recommends carrying our worker assessments as early as possible. “Over the last eighteen months I have had the privilege of speaking at a number of events on the subject of automatic enrolment.
One of the areas I cover is around the assessment of the workforce. On a number of occasions there has been gasps from the audience when describing the employer duties, but particularly around what you must do, depending upon the worker’s (employee) status. The only way employers can gauge how much work might be involved for them is to undertake a full assessment of the workforce. Whilst the workforce will change, a common snapshot used is that at the end or the start of the tax year.
The assessment will allow employers to understand who is in their pension scheme now, who will be eligible to be automatically enrolled at the staging date, and who might want to join. Not only will this help with the administrative tasks automatic enrolment involves, but also the employer’s cash flow and or budget planning. I would therefore recommend after ascertaining the staging date, employers carry out a thorough review of their workforce to ensure they are in a position to plan properly.”
Q1. Annabel works in your Manchester store and has done for the last 8 years, she joined the company when she was 21 and has had 3 pay rises over the years so her salary is now £22,000 per annum. Do you have to automatically enrol Annabel? Do you have to make contributions for her?
Q2. George is 23 and has only worked for you for 2 months; he is based in your Nottingham factory and earns £15,000 a year. Do you have to automatically enrol George?
Q3. Laura is 34 and works for you part-time in your Kent office; she earns £8,000 a year. Do you have to automatically enrol Laura?
Key facts about NEST and automatic enrolment:
- The government is currently introducing reforms that mean employers will have to automatically enrol most of their workers into a workplace pension scheme that meets or exceeds certain standards. They’ll also need to make a minimum contribution for many of these workers.
- Starting with the largest employers and rolling out over the next five years, around 11 million people working for some 1.2 million employers will be automatically enrolled into a workplace pension. The new laws mean that practically every employer must automatically enrol their eligible workers into a qualifying workplace pension scheme and make contributions.
- NEST, which was established by government as part of these reforms, is a national defined contribution workplace pension scheme available to all employers to use to meet their new duties. It is designed around the needs of people who are largely new to pension saving, with clear communications, low charges and easy online tools and services. It is run as a trust-based scheme, on a not-for-profit basis, and the trustee has a legal duty to act in its members’ interests.
- NEST has a public service obligation to accept any employer (whatever their size) who wants to use the scheme to meet their duties, as a sole scheme or alongside other provision.