Last reviewed 14 November 2017
To establish active membership of a qualifying workplace pension scheme it is necessary to follow the same process as was required the first time around under automatic re-enrolment. However, as this is the first cyclical re-enrolment date for many small employers Paul Tew, small business consultant and freelance advisor, examines what action must be taken, when by, the penalty for failure to comply and the planned increases in minimum contributions.
Automatic re-enrolment means putting workers back into pension saving. Broadly, every three years all employers have a legal duty to use cyclical re-enrolment to put eligible jobholders back into an automatic enrolment workplace pension scheme because the individual had elected to opt out or ceased membership after the employer’s staging date.
Employers and the trustees or managers of the pension scheme must undertake an assessment to identify whether any workers meet the criteria to be an eligible jobholder based on the worker’s circumstances on the assessment date. The assessment date is the cyclical automatic re-enrolment date. The assessment of worker categories at the cyclical automatic re-enrolment date is separate to the employer’s usual assessment process of workers that must be undertaken each pay period.
Selecting the automatic re-enrolment date
Employers must select an automatic re-enrolment date. This date must fall within a six-month window, starting three months before the third anniversary of the original staging date for automatic enrolment and ending three months after that anniversary.
For example, a small employer who had 58 employees in a PAYE scheme on 1 April 2012, and therefore had a staging date of 1 January 2015, can choose a date for re-enrolment purposes between the 1 October 2017 and 31 March 2018.
Employers are not able to apply different dates to different workers or groups of workers. The same date applies to all the workers included in the assessment, irrespective of whether the workers are monthly or weekly paid.
Establish if any workers need to be re-enrolled
Employers are required to re-enrol previous members of a qualifying scheme who voluntarily ceased or opted out of active membership of a qualifying pension scheme more than 12 months before the re-enrolment date, provided these workers are eligible jobholders at the re-enrolment date. In addition re-enrolment applies to any jobholders, who having been auto-enrolled decided to remain in the pension scheme but pay a lower contribution rate than is required by law.
Under automatic enrolment a postponement period can be used by employers to delay assessing and therefore enrolling some, or all of their workers into a pension scheme for up to three months. This postponement period is not available for use with automatic re-enrolment.
The Pensions Regulator’s website contains a list of workers not covered by the re-enrolment assessment and those where re-enrolment is optional, eg those who hold the office of director.
Know when to start the automatic re-enrolment process
Employers must ensure that all eligible jobholders receive written notification within six weeks of the selected re-enrolment date informing them how the re-enrolment applies to them. The re-enrolment date is also the start date for the calculation of pension contributions for those eligible jobholders being automatically re-enrolled.
Not all eligible workers will sign up
An eligible jobholder has one month after automatic re-enrolment during which the individual can choose to opt out of pension saving again. Employers can use existing opt-out and refund processes to accommodate opt-out requests. Any employer pension contributions must be refunded by the pension scheme by the relevant refund date.
Complete the re-declaration of compliance
As part of the re-declaration process, employers must inform the Pensions Regulator of the chosen automatic re-enrolment date (it is necessary to choose a re-enrolment date, even if the employer has no workers to auto re-enrol). Employers must complete a re-declaration of compliance within five calendar months from the third anniversary of the designated staging date.
Once automatic re-enrolment has been completed, employers will have ongoing responsibilities either with the pension scheme, such as paying contributions or to manage the opt-out process, if the jobholder chooses to opt out of the pension scheme and to keep records.
Employers’ failure to comply with all of their duties concerning automatic re-enrolment could result in a fine of £400 being imposed and/or prosecution.
Minimum contributions set to increase
For pension schemes used for automatic enrolment there are minimum contributions on qualifying earnings (salary, commission, bonuses, overtime and statutory payments but not benefits in kind) that must be paid by all employers. There are two planned increases to the minimum contributions, with the first due to take effect from 6 April 2018 and the second from 6 April 2019.
The minimum contributions that must be paid into a worker’s pension scheme are currently a total contribution of 2% with at least 1% employer contribution. From 6 April 2018, there is a total minimum contribution of 5%, of which 2% must come from the employer, with 2.4% coming from the employee and 0.6% in tax relief from the Government. There will be a further increase a year later, with total minimum contribution being set at 8%, of which 3% must come from the employer, with 4% coming from the employee and 1% in tax relief from the Government. These are significant increases which employers must plan and budget for.
If an employer pays the total minimum contribution then the employee will not need to pay any contributions, unless the scheme rules require a contribution. If employers pay more than their required minimum amount but less than the total minimum amount, then the employees only need to pay the shortfall between the total minimum and the employer contribution. Employers and employees can pay more than the minimum contribution.
Scheme increases where pensionable pay is used
Employers can self-certify that the workplace pension scheme meets the minimum requirements to qualify for automatic enrolment. Schemes are then divided into three sets, each of which has its own qualifying conditions, with particular requirements under automatic enrolment for each. There are also substantial increases planned for these schemes minimum contributions at the start of the next two tax years.
From 6 April 2018, a total minimum contribution of at least 6% of pensionable pay (9% from 6 April 2019) is payable of which at least 3% (4% from 6 April 2019) must be the employer contribution.
From 6 April 2018, a total minimum contribution of at least 5% (8% from 6 April 2019) of pensionable pay is payable of which at least 2% (3% from 6 April 2019) must be the employer contribution, provided that pensionable pay constitutes at least 85% of total earnings before tax (the ratio of pensionable pay to earnings can be calculated as an average at scheme level).
From 6 April 2018, a total minimum contribution of at least 5% of earnings (7% from 6 April 2019) is payable of which of at least 2% (3% from 6 April 2019) must be the employer’s contribution, provided that all earnings are pensionable.
Pensionable pay is defined by the rules of the pension scheme. Usually, pensionable pay is basic salary, not including, additional earnings such as commission, bonuses and overtime.