Auto-enrolment deconstructed - 2013 www.allenovery.com
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Auto-enrolment deconstructed 2013 www.allenovery.com
2 Auto-enrolment deconstructed | 2013
For help with auto-enrolment,
talk to us
Maria Stimpson Däna Burstow Neil Bowden Helen Powell
Partner – Pensions Partner – Pensions Partner – Pensions Senior PSL – Pensions
Tel +44 20 3088 3665 Tel +44 20 3088 3644 Tel +44 20 3088 3431 Tel +44 20 3088 4827
maria.stimpson@allenovery.com dana.burstow@allenovery.com neil.bowden@allenovery.com helen.powell@allenovery.com
© Allen & Overy LLP 2013
3
Contents
Auto-enrolment deconstructed 04
You need efficient HR systems to
manage auto-enrolment 05
Deconstructing the puzzle 06
1. Who gets what? 07
2. W
hen do I have to do what? 11
3. What my scheme has to do 17
4. Getting people enrolled 20
5. Letting people exit the scheme 24
6. Communications 26
7. Compliance 28
8. W
hat else should I be thinking about? 32
Resources 35
www.allenovery.com
4 Auto-enrolment deconstructed | 2013
Auto-enrolment
deconstructed
The idea behind automatic pension enrolment is Specialist terms
simple – all UK workers should be in a good pension
Where we use a particular term or expression which has a
scheme unless they actively choose not to be.
specific auto-enrolment meaning it is in bold. Have a look in
Unfortunately the actual requirements applying to employers the glossary at the end for definitions and signposts to the
are not simple. There are a lot of individual components to right place in this guide to find out more.
get right, and they all interact.
It's all too easy to focus on the staging date: what you need Need to find out even more?
to do is to ensure you're compliant on a ‘business as usual’
basis. How will you operate under the regime on an ongoing This guide is a very high level summary. It aims to
basis? If you have distributed HR teams, are they all up deconstruct the components to give you a reference
to speed with the new rules? guide to work with the regime over the months and years
ahead. The Pensions Regulator’s website offers extensive
It's up to you to apply the rules to your business and guidance on the details of the processes. See page 35 for
workforce, but we're here to help. We have been doing this more resources.
since the start; we know about the tricky bits and what can
catch you out. Have a look at the briefings and videos on
our auto-enrolment website and come and talk to us:
www.allenovery.com/autoenrolment.
© Allen & Overy LLP 2013
5
You need efficient HR systems
to manage auto-enrolment
The auto-enrolment regime covers a set of processes that
each employer must apply to its own workforce. It applies
across the board to all employers (British or otherwise)
with workers ordinarily working in the UK and it applies
to almost all of those workers. Only the very lowest paid,
the very young and the very old are excluded.
The key to the whole regime is having HR and payroll
systems that sort your workers into categories at each key
assessment date, and then trigger communications and apply
processes according to those categories. Outlined below are
the main processes you need to cover.
Processing Communications
Assessing automatic to workers,
workers to enrolments pension scheme
determine into a suitable administrators and
their rights pension scheme the Pensions
Regulator
Maintaining
systems Processing Processing Processing
for records other admissions opt-outs other exits
and compliance
www.allenovery.com
6 Auto-enrolment deconstructed | 2013
Deconstructing the puzzle
Each of the following sections of this guide looks at one
component in turn.
2. When do 3. What my
1. Who 4. Getting
I have to pension scheme
gets what? people enrolled
do what? has to do
5. Letting 8. What else
people exit 6. Communications 7. Compliance should I be
the scheme thinking about?
© Allen & Overy LLP 2013
7
1. Who gets what?
One of the key elements of the auto-enrolment regime is
working out which of your workers is entitled to what, and
when. The timing of the tests is discussed in When do I
have to do what? (see page 11 onwards). In this section we
look at the basic entitlements and how you work them out.
Overview of who gets what
There are three categories of worker who have rights
within the automatic enrolment regime: eligible jobholders,
non-eligible jobholders and entitled workers. Here are their
basic rights, plus details of where to find out more.
Eligible jobholder Non-eligible jobholder Entitled worker
Automatic enrolment into an automatic Right to require enrolment into an Right to require enrolment into a pension
enrolment scheme (see page 17) with automatic enrolment scheme with scheme, but no minimum employer
minimum employer contributions. minimum employer contributions. contributions or quality standards.
Opt-out rights (see page 24). If that right is exercised, opt-out right.
Re-enrolment rights (see page 22).
www.allenovery.com
8 Auto-enrolment deconstructed | 2013
Working out who is in which category
and monitoring for changes
NO Individual does not have rights
Is the individual a worker?
under automatic enrolment regime.
(see page 9)
Consider other benefit options
YES
NO
Is the individual ordinarily working
in the UK? (see page 9)
YES
NO NO
Is the individual aged between 22 Is the individual aged 16 to 21, or
and State pension age? State pension age to 75?
YES YES
NO Is the individual earning NO
Is the individual earning over the
over the qualifying
earnings trigger?
earnings threshold?
YES YES
Eligible jobholder Non-eligible jobholder Entitled worker
(see page 7) (see page 7) (see page 7)
Notes
If someone in your workforce is not an eligible The earnings trigger for automatic enrolment
jobholder, keep monitoring the situation for any is £9,440 in tax year 2013/14.
changes – you will need to go through the test again.
A person has no auto-enrolment regime rights if he:
The qualifying earnings threshold is £5,668 in tax
––is not a worker; or
year 2013/14. Qualifying earnings are earnings over
the threshold, up to £41,450. ––is not ordinarily working in the UK.
© Allen & Overy LLP 2013
9
Working out who is a “worker”
and “ordinarily working in the UK”
Worker? Ordinarily working in the UK?
Yes, if they are under a contract (express or implied) to perform This is not about nationality. Where is the contract based? How
work or services personally. Trainees and apprentices, as well as does it work in practice? Is the employment still based in the UK?
temps/agency workers (if paid by you) can all count as workers.
Outbound secondees may need to be covered if they would
There is no minimum service requirement.
ordinarily be working in the UK, ignoring the secondment -
Officeholders and volunteers don't usually count. provided they are expected to return to the UK and their contract
remains with the UK employer.
Your contractors and consultants may need to be covered unless
they are in business on their own account (i.e. you are a client of Inbound secondees may not need to be covered if they are
their business). expected to return home at the end of their secondment and their
contract remains with their home employer.
Working out earnings for eligibility
thresholds and contributions
A worker’s rights, and the contributions payable in respect Earnings means gross earnings, including overtime,
of him, will vary depending on what he earns during a pay bonuses and commission and any statutory payments
reference period. This is the period by reference to which such as sick pay/maternity pay.
you pay the worker their regular wage or salary. This may
Qualifying earnings are a band of earnings used
differ from pay frequency.
as the basis for assessing eligibility and contributions.
A joining date late in the pay reference period may mean Not everyone with qualifying earnings is eligible for
auto-enrolment is not triggered until the next period. auto-enrolment: only those who earn more than the
If you have a worker with multiple contracts but in reality earnings trigger are eligible jobholders who need to
there is one employment relationship, assess earnings be auto-enrolled.
based on aggregate pay across all contracts.
Level at which earnings
Pay reference period Earnings trigger (£)
become qualifying earnings (£)
1 week 109 182
4 weeks 436 727
1 month 473 787
1 quarter 1,417 2,360
Bi-annual 2,834 4,720
Annual 5,668 9,440
www.allenovery.com
10 Auto-enrolment deconstructed | 2013
Contractual enrolment: putting workers
into pension schemes first
Contractual enrolment is any enrolment of workers However, there are risks to individual workers:
outside the strict terms of the auto-enrolment regime,
––No automatic opt-out rights apply – the worker would
for example, employer-initiated automatic processes for
have to exercise the normal scheme exit option and is
new joiners applying before the staging date. Contractual
treated as having been a member (see page 24) unless the
enrolment also applies where the employer over-complies,
scheme has its own binding opt-out rule. No opt-out is
for example enrolling all workers irrespective of whether
automatically available from a personal pension, but a
they are eligible jobholders or not, or enrolling workers
right to cancel the contract may apply.
before their automatic enrolment date.
––A worker with fixed or enhanced protection will
Employers may prefer to use contractual enrolment to:
lose their tax protected status if they join a new money
––Smooth salary sacrifice processes for new joiners. purchase arrangement or accrue new benefits in a
defined benefit scheme (see page 19).
––Offer the same pension provision to all workers.
––The option to take flexible drawdown is not available to
members who have contributed to a money purchase
scheme in the tax year of the declaration.
To operate contractual enrolment you will need workers’
consent to deductions from pay (e.g. in their contracts).
You will still have to meet some information obligations
under the auto-enrolment regime.
Notes
If you operate contractual enrolment and workers opt membership (if any). The Government is considering
out or leave the scheme, you may have to auto-enrol removing this requirement, in order to reduce burdens
them back into a qualifying scheme as soon as they on employers and confusion for members – but for
become eligible, even if this is as early as the next pay the moment, standard auto-enrolment rules apply in
reference period. This will depend on whether or not this situation.
they were eligible jobholders during their period of
© Allen & Overy LLP 201311
2. W
hen do I have to do what?
Enrolment duties, assessment of rights, communications
and opting-in and -out rights are all tied to specific dates
and periods. In this section we look at working out the
key dates, and what you need to do for each.
Key dates
These are the key dates you need to know:
Staging date Automatic enrolment date
The date the regime The date auto-enrolment first
first applies to you applies to an eligible jobholder
Deferral date
The date auto-enrolment Enrolment date
Assessment date
will apply to a worker if you The date enrolment applies to
The date as at which you test
postpone enrolment, for a jobholder who opts in to
eligibility and earnings
example to align it with scheme membership
your payroll cycle
www.allenovery.com12 Auto-enrolment deconstructed | 2013
Key windows
Transitional period Joining window Opt out period
This applies where workers will be The one-month period from the The one-month period starting on
enrolled into a defined benefit or automatic enrolment date or enrolment the date of actually being admitted
hybrid scheme. Employers can defer date during which the employer must to membership (or later provision of
auto-enrolment for existing workers at ensure the individual is enrolled in an enrolment information) during which the
the staging date who are eligible to automatic enrolment scheme and all worker can opt out of membership and
become members of the scheme, processes are completed. Enrolment have everything undone as if they had
until 1 October 2017. Opt-in rights must be effective from the automatic never been admitted. The period is
apply during this period. enrolment date or enrolment date. extended to six weeks if an invalid opt
If using a personal pension scheme, out notice is given (see page 24).
enrolment only happens once the
individual receives the provider’s terms
and conditions and the employer and
provider have entered into a minimum
contribution contract (see page 23).
Working out the automatic enrolment date
An individual’s automatic enrolment date is the date on which all
assessments are made and from which scheme membership begins.
It will be whichever is the latest of these dates:
If you are using a
Staging date
defined benefit or
Your staging date is listed on
hybrid scheme, and
the Pensions Regulator’s
opt to use the
website and you should receive
transitional period,
letters from the Regulator 12
auto-enrolment
and three months before to
is deferred to
confirm your date.
1 October 2017.
Automatic Deferral date
enrolment date If you are applying
The date the worker first postponement, use the last
The jobholder’s first
becomes an eligible day of your postponement
day at work if he is
jobholder. Monitor for period (the date you selected
already eligible.
changes, for example and notified to your
with worker pay rises jobholders as the start
or birthdays. of enrolment).
© Allen & Overy LLP 201313
Working out the enrolment date for opting in
If a jobholder opts in to membership (see page 21), they as at that day). You need to make sure that
should be enrolled with effect from their enrolment date actual membership is arranged before the end
(provided they are still a jobholder with qualifying earnings of the joining window.
Normal enrolment date If you are operating postponement
First day of next pay reference period after valid opt in notice Enrol on whichever comes first: the deferral date for the
received (provided jobholder has qualifying earnings as at postponement period, or the normal enrolment date for this opt-in.
that day).
If an opt-in notice is given after payroll has closed for the
period, enrol from the first day of the following pay reference
period instead.
Using the automatic enrolment date and the enrolment date
The automatic enrolment date is used for a variety of triggers
and, where a jobholder opts in, the enrolment date takes its
place in most cases.
Start of joining window:
effective start date of
Assessment date for testing
active membership of
the status of the individual:
auto-enrolment scheme
age, earnings, relationship
(you must complete
with employer.
all arrangements within
one month).
Opt-out rights don’t start
immediately – they only
One month countdown apply once the jobholder
Effective date for calculation
for information packs has actually been admitted
of contributions.
(see page 16). to the scheme or, if later,
has received the
enrolment information.
www.allenovery.com14 Auto-enrolment deconstructed | 2013
Postponing enrolment
What is postponement? Why do it?
You can defer the auto-enrolment process for up to three months. – To align with payroll dates and avoid part-period contributions
You choose the deferral date. (postpone to first day of next pay reference period).
– To maximise the opt-out period before payroll
(aiming to limit the number of opt-out refunds).
– To help with contractual enrolment and salary
sacrifice arrangements.
– To avoid auto-enrolling short-term/seasonal workers (although
they can opt in) (postpone to last possible date).
Postponing auto-enrolment
How do you do it? Effect of postponing enrolment
Send a postponement notice to each affected worker and its limits
(see page 16 for deadlines).
You postpone the requirement to test eligibility for auto-enrolment
to the deferral date.
If a worker meets the eligibility criteria on the
deferral date you must auto-enrol them
(no further postponement).
If the worker is not eligible on that date, monitor his/her eligibility at
each pay reference period. When the worker does become
eligible, postponement is available again.
If the worker becomes eligible during the postponement period,
you cannot impose a further postponement period from that date.
© Allen & Overy LLP 201315
When don’t I have to
enrol someone?
If you already offer a qualifying pension scheme to your
jobholders, you may not have an immediate enrolment duty for
existing members at your staging date, though you will still have
assessment duties. If it is a defined benefit arrangement, you can
defer assessment and enrolment for those eligible to join.
Eligible jobholders employed as Eligible jobholders employed on
at the staging date, who are the staging date who are entitled
already active members of a to join a qualifying defined
qualifying scheme benefit scheme or section
No need to go through the enrolment process for You can delay formal enrolment processes for
these workers unless and until they stop active these workers for a transitional period ending on
membership. Re-enrolment duties then apply. 30 September 2017, provided they can join the
defined benefit arrangement at any time
Action throughout that transitional period.
The automatic enrolment date for these workers
moves to 1 October 2017 (unless the condition
above is no longer met in which case backdated
contributions may be required).
Issue notice to affected workers within two months
of the staging date. Confirm status of existing
Send out a transitional period notice to affected
Information rights scheme membership and explain auto-enrolment
will apply if active membership stops (other than by
jobholders before the original staging date or
within one month after it, or lose the option.
the worker’s choice) and where to get information
about pensions and saving for retirement.
Jobholders can still opt in to pension scheme
Opt-in rights membership if they cease to be a member of a
qualifying scheme (see page 18).
Jobholders can still opt in to pension scheme
membership during the transitional period.
Notes
If the option of using the transitional period for defined notices right. The consequences of not continuing to
benefit schemes interests you, talk to the Allen & Overy satisfy all of the conditions can be expensive.
pensions team well in advance to get the set-up and
www.allenovery.com16 Auto-enrolment deconstructed | 2013
Deadlines for information:
the first notices and packs
The employer has to provide a raft of notices and
information to each worker and to its scheme provider
or trustees. Each information requirement has a deadline.
The ones below are the very first notices and packs.
For more information on the notices, see page 27.
Transitional period notice. If you give this notice, read reference to staging date
Before or within one month from the staging date
below as referring to the end of the transitional period (see page 12).
Register with the Pensions Regulator once all postponement periods have
Within four months of the staging date ended and provide a breakdown of your compliance with the auto-enrolment
regime by category of worker.
Postponement notice (see page 14). If you give this notice you could include the
rights packs below, or wait until the end of the deferral period.
Eligible jobholder’s rights pack.
Before or within one month of the staging date or if later the
first day of work or the first day the worker becomes a jobholder Non-eligible jobholder’s rights pack (only needs to be given the first time the
individual becomes a jobholder).
Entitled worker’s rights pack (only needs to be given the first time the individual
becomes an entitled worker).
Before or within two months of qualifying as a jobholder Active members of qualifying schemes only: active member rights pack.
These packs have to be given by the employer when the
individual qualifies, if not given before (for example with
the postponement notice). This obligation applies again at
re-enrolment (see page 22).
Eligible jobholder’s rights pack and information about the scheme
Before or during the joining window (see page 12)
and contributions.
Non-eligible jobholder’s rights pack.
Within one month of first qualifying, or deferral date if applicable
Entitled worker’s rights pack.
Within joining window Jobholder’s information (give to scheme provider or trustees, as applicable).
Within two months of date that would be automatic
Active members of qualifying schemes only: active member rights pack.
enrolment date
The trustees or scheme provider must
give the following information:
One month from the trustees receiving the
Occupational pension scheme Normal scheme joining information pack jobholder’s information from the employer
(statutory disclosure requirements).
Terms and conditions of the pension contract
Employer must arrange for this to happen within
Personal pension scheme (plus normal key features information required by
the joining window.
the Financial Conduct Authority)
© Allen & Overy LLP 201317
3. What my scheme has to do
Depending on the category of worker, you must provide transitional period for defined benefit offerings (see page
a scheme which is either an automatic enrolment scheme, 12) a defined benefit qualifying arrangement should stay
a qualifying scheme or a UK tax-registered scheme. open to them.
The quality tests are just minimum requirements.
If complying with a joining notice to enrol an entitled
Think about whether you want to offer more
worker, you need to offer a UK tax-registered pension
generous structures to some or all of your staff.
scheme; an entitled worker who is already an active
For auto-enrolment and enrolment of opting-in member of such a scheme has no right to join a
jobholders you need an automatic enrolment scheme. different scheme.
To be exempt from the need to enrol someone into an This section looks at what makes a scheme an automatic
automatic enrolment scheme, they should be in a qualifying enrolment scheme or a qualifying scheme.
scheme (see page 18) or, if you are taking advantage of the
Automatic enrolment schemes and qualifying schemes
Auto-enrolment scheme:
UK scheme test
A scheme administered in
Qualifying scheme. the European Economic Area
The benefit structure is open to existing members can qualify as an automatic
and new enrolment. enrolment scheme.
Nothing in the rules prevents automatic enrolment Additional regulatory and
(e.g. worker, employer, trustee or provider consent). structural conditions apply
Nothing in the rules requires the worker to make a choice
e.g. investment selection, or to provide any information.
Qualifying scheme: UK scheme test
UK tax registered occupational or personal pension scheme.
A scheme administered
All schemes: satisfy the relevant quality test (see page 18 for the outside the UK can qualify
options) and have evidence of compliance (the evidence required
depends on the option).
as a qualifying scheme.
Specific additional tax,
Personal pension schemes only: formal agreements for regulatory and benefit
employer contributions and any worker contributions, plus
direct pay arrangements.
requirements apply
www.allenovery.com18 Auto-enrolment deconstructed | 2013
Qualifying schemes: quality tests
Whatever pension arrangement you offer to a particular
jobholder, it must satisfy one of the quality standards.
Defined benefit or hybrid schemes Career average schemes
Check that the scheme is either contracted-out or that it Make sure the scheme also provides for revaluation of
passes the test scheme standard. earnings during active membership. Revaluation can
be discretionary but must be funded (minimum of limited
The defined benefit test scheme standard is a notional
price indexation up to 2.5%), and included in the scheme’s
test scheme providing a pension of up to 40/120ths of
funding plan.
average qualifying earnings in the three tax years before
retirement. For the tax year 2013/14, qualifying earnings
are gross earnings in the band £5,668 to £41,450.
Defined contribution schemes
Minimum total contribution Minimum employer contribution As a percentage of
Main quality test
8% 3% Qualifying earnings
Pensionable pay (which must be at least
Tier 1 9% 4%
basic pay)
Pensionable pay (which must be at least 85%
Alternative tests Tier 2 8% 3%
of total pay for the relevant group of workers)
Tier 3 7% 3% Total pay
Defined contribution schemes: phasing-in contributions
Money purchase schemes don’t have to require Employers and employees can phase in
contributions at the full rate until October 2018. contributions gradually.
Main quality test Tier 1 Tier 2 Tier 3
Applies from
Full requirement Total 8% Total 9% Total 8% Total 7%
1 October
Employer 3% Employer 4% Employer 3% Employer 3%
2018 onwards
From your
Total 2% Total 3% Total 2% Total 2%
staging date to
Employer 1% Employer 2% Employer 1% Employer 1%
30 September 2017
Phasing-in period
1 October 2017 to Total 5% Total 6% Total 5% Total 5%
30 September 2018 Employer 2% Employer 3% Employer 2% Employer 2%
Remember that if your scheme meets the quality before the end of the first or second phasing-in period.
requirements now, but allows contributions below the full If you are increasing minimum member contributions,
rates, you will need to increase minimum contributions this will require consultation.
Notes
Basic pay means earnings ignoring any commission, qualifying earnings) or one of three alternative tests based
bonuses, overtime or similar payments. It can exclude on different pay definitions – in most cases, employers will
car/clothing allowances but includes geographical have to self-certify that their scheme meets the standards.
weighting payments. To do this, you must follow a certification process set out
in DWP guidance (see page 35).
Defined benefit or hybrid schemes can be certified as
meeting the quality test by the employer (in straightforward Talk to us if you need to use a non-UK scheme for
cases) or by an actuary. Defined contribution schemes can auto-enrolment purposes.
meet either the main quality test (which is based on
© Allen & Overy LLP 201319
Before you get workers enrolled
WARNING!
Before you go ahead and enrol someone, check if Talk to us if you have workers with tax protection – there
they have any special pension tax protection. are a number of things you could do to make life easier for
you and your highly-paid workers.
Workers with fixed protection or enhanced protection
of their existing pension entitlements above the normal tax Remember that the category of workers who may have
allowances will lose that protection if they become an protected status will widen from 6 April 2014 as some
active member of a pension scheme, unless they opt out individuals claim ‘fixed protection 2014’.
again within the opting-out window. At the moment you
are still technically required to enrol these workers, but
the Government proposes to remove that obligation in
the future.
www.allenovery.com20 Auto-enrolment deconstructed | 2013
4. Getting people enrolled
This section covers the process of getting people into
schemes, whether automatically or on request.
Arrangements for enrolment: jobholders
Whether you are automatically enrolling an eligible
jobholder or enrolling an opting-in jobholder, the process
is the same during the joining window.
Step 1
Send information pack about the scheme and workers’ rights to
jobholder (see pages 16 and 27) and send jobholder’s information
to the trustees/scheme provider to set up membership (see page 27).
One month window to complete this and the following steps.
Step 2
Start collecting worker contributions.
Step 3
Do whatever is needed to achieve membership for the jobholder
with effect from the automatic enrolment date (or deferral date
or enrolment date as applicable).
For example, enter into contribution agreement with personal pension
provider and get provider to give terms and conditions to jobholder.
Step 4
Record the date you achieve membership for the worker:
opt-out window starts from this date or (if later) date on which
information pack in Step 1 is received (see page 12).
© Allen & Overy LLP 201321
Opt-ins and requests to join
You must tell jobholders and entitled workers about their Initial checks
rights to be admitted to pension saving (see page 7). If you
Is the worker a jobholder or an entitled worker?
get a joining notice from a non-eligible jobholder asking
to opt into your scheme or from an entitled worker asking Is the notice valid (in writing or by email and signed
to join pension saving, what you have to do depends on or personally submitted)?
the worker’s status.
Is the worker already an active member of a scheme?
Has the worker applied before?
!
Don’t enrol if: the worker is already an active member
of a qualifying pension scheme (jobholder) or UK
tax-registered scheme (entitled worker) or already
scheduled for auto-enrolment or re-enrolment.
!
Don’t enrol (unless you want to) if: the worker has
previously given opt-in notice or joining notice in the
last 12 months and subsequently left the scheme.
Good to go? Apply normal auto-enrolment process
(see page 20) from enrolment date (see page 12)
for jobholders. See page 22 for the process for
entitled workers.
Notes
A worker may have flexed down below minimum require contributions to be increased to the
contribution levels: an opt-in request would auto-enrolment minimum.
www.allenovery.com22 Auto-enrolment deconstructed | 2013
Admitting entitled workers
Workers’ rights Process for employer
Right to join a workplace pension scheme (UK Contact trustees/provider of scheme to give information
tax-registered but not necessarily a qualifying scheme about the worker and check conditions for entry. Set up
or auto-enrolment scheme) at any time while still an direct pay arrangements for worker if offering personal
entitled worker. pension plan. No particular deadlines specified.
No right to employer contributions. Choose whether or not to make employer contributions.
Conditions: worker must give a valid joining notice to the Keep record of joining notice.
employer, and comply with all the joining requirements of
Monitor the worker for any change in status to become
that scheme.
a jobholder. Assess pay on the first day of each pay
If worker leaves the scheme, employer is not bound to reference period.
honour a second request within 12 months.
Re-enrolment duties
Workers can leave a pension scheme at any time. On the re-enrolment date
Whether the exit is through normal scheme processes
Re-enrol anyone who is at that time an eligible jobholder,
or via the temporary opt-out facility (see page 25),
but not an active member of a qualifying pension scheme
the auto-enrolment regime doesn’t stop applying.
(for example because they have exited the scheme,
If a jobholder continues in service but (without any action or reduced their contributions below the level required
on his part) stops being an active member of a qualifying for a qualifying scheme).
scheme, the employer must re-enrol him the next day.
Each employer must also set a re-enrolment date within a Exceptions
window from three months before, to three months after,
the third anniversary of their staging date. Jobholders who opted out of membership of a qualifying
scheme after being enrolled, or voluntarily ceased
membership, in the 12 months before the re-enrolment date.
© Allen & Overy LLP 201323
Getting contributions right
Employer and worker contributions are a key component Operating payroll deduction immediately
of auto-enrolment.
Contributions are due from and in respect of an enrolling
jobholder from their automatic enrolment date, or
Contribution documentation for GPP enrolment date as applicable. That means operating
If you’re using a group personal pension, you need three deductions from pay from the end of the pay reference
separate agreements to cover contributions: period in which enrolment is treated as occurring, even
if membership has not yet been established with the
––Direct payment arrangements between employer and
pension scheme.
worker to deduct contributions and pay provider.
––Agreement between employer and provider for employer
Calculating contributions
to pay at least minimum employer auto-enrolment
contributions for the worker. Contributions should be calculated from the automatic
enrolment date, or enrolment date as applicable. This can
––If the employer is not paying the full minimum
mean payments for part of a pay reference period.
contribution (see page 18), an agreement between the
provider and the worker for the shortfall.
Normal deadline for contributions
Consent to deductions of worker 19th day of month following month of payroll deduction
(22nd if paying electronically).
contributions from pay
You don’t need specific written consent from the worker
for deductions from pay following automatic enrolment or
Deadline for contributions during the opt
enrolment to comply with an opting in or joining notice. out period
You do need consent if using contractual enrolment into a Can be extended to end of second month following month
contributory scheme. of payroll deduction.
Contribution documentation for Delayed and unpaid contributions
occupational pension scheme Trustees and providers are required to monitor
contributions, chase late payments and report serious
This is the pension scheme’s schedule of contributions or
breaches to the Pensions Regulator.
payment schedule. It documents contribution amounts and
timetable. Should you change the schedule to cater for opt
out periods? (see page 25).
Tip
Sorting out refunds from the scheme is complicated for until the worker’s right to opt out has expired.
everyone concerned and deadlines are tight. Don’t forget to change your schedule of contributions
or payment schedule accordingly if you are offering
Think about agreeing with the scheme provider or
an occupational scheme.
trustees a delayed payment date for contributions
www.allenovery.com24 Auto-enrolment deconstructed | 2013
5. Letting people exit the scheme
Workers cannot be compelled to remain active members
of a pension scheme, and can stop active membership at
any time by notice to the trustees or scheme provider.
Their rights following that exit depend largely on how long
they have been an active member. However, jobholders
enrolled via automatic enrolment or via an opt-in notice
have a unique (but temporary) right to exit and have the
whole enrolment process undone and treated as not
having taken place.
Workers’ rights to exit
Even if workers ask not to join, the employer is still bound to enrol them if they are
Before enrolment eligible jobholders.
Follow opt-out process (see page 25).
Refund worker contributions.
During opt-out period
Cancel any applicable salary sacrifice.
Enrolment duty applies again at the next re-enrolment date (see page 22).
Follow scheme exit process (e.g. notice to trustees, provider and/or employer).
Member of group personal pension or NEST:
pension preserved, but available for transfer from personal pension (not currently available from
After opt-out period NEST). No refund available.
(at any time if entitled worker or
using contractual enrolment)
Member of occupational pension scheme:
– if less than three months' membership, refund of worker contributions if scheme permits.
– over three months and under two years: refund or transfer payment.
– otherwise, pension preserved but available for transfer. Refund option expected to be
removed in 2014.
© Allen & Overy LLP 201325
Opting out
The opt-out period opens when the worker joins It closes one month later
the scheme (or, in a group personal pension plan,
If the employer tells the worker the first notice
when the provider sends them information on terms
was invalid the worker has a short extension,
and conditions), or, if later, when the worker is
to six weeks, to give a second opt-out notice.
actually given enrolment information (see page 27).
Jobholder Employer
––Contact trustees (or provider in a group personal ––Check the notice is valid. If not, tell the worker
pension) to get an opt-out form. what’s wrong so they can try again.
––Give notice to opt out before the end of the ––Stop deducting worker contributions and notify
opt-out period to employer. the trustees or provider.
––To be valid, the notice must either be in writing and ––Pay refund of amount of worker contributions
signed, or electronic with a declaration that it has been to worker.
made by the jobholder personally.
––Record the opt-out for future reference.
––Re-enrol the worker on the next re-enrolment date
if eligible (see page 22).
Dealing with refunds after an opt-out
If a jobholder opts out during the opt-out period, You will be due a refund from the scheme of any
the employer must pay a refund of the jobholder’s contributions actually paid over to the scheme; however,
own contributions (subject to appropriate tax). you should consider changing your normal contribution
transmission patterns for jobholders during the opt-out
If you receive a valid opt-out notice, pay the refund to the
period to avoid a potential mismatch in timing of refunds
jobholder within one month from the date on which you
(see page 23).
receive the notice. If you receive the notice after payroll
has closed for the pay reference period, make the payment If the worker exits the scheme after the opt-out
by the last day of the second pay reference period after the window has closed, normal rules apply on refunds
date on which notice is given. or preserved rights.
Notes
The option to opt out of membership and undo the (although the scheme may have its own opt-out rule
process does not apply to an entitled worker who has to provide similar flexibility).
been admitted to membership; nor does it apply to
NB: you should consider changing your scheme rules
someone who is contractually enrolled (see page 10)
to allow this.
www.allenovery.com26 Auto-enrolment deconstructed | 2013
6. Communications
The auto-enrolment regime relies on a network of notices Remember that these are in addition to all the normal
and information going to members and other parties. communications that a pension scheme might provide
We’ve set out the key events when you will need to provide to its members (investment options, scheme booklets,
information – or might want to communicate about the invitations to nominate dependants and so on).
process – in the table opposite, with a note of where
you can find details about what the content should be.
You’ll find the detailed guidance notes referred to
below on the Regulator’s website (see page 35).
© Allen & Overy LLP 201327
Information packs and notices: what and when
Trigger Resource Deadline
Pre-staging date DWP website (see page 35) Optional
Transitional period Guidance note 3B One month from staging date
Postponement (generic or Guidance note 3A One month from staging date or
tailored notice) auto-enrolment date
Staging date/later assessment Eligible jobholder: guidance note 5 One month from automatic enrolment date
– workers who are not active
members Non-eligible jobholder: guidance note 3C One month from date right to opt in applies
Entitled worker: guidance note 3C One month from date right to join applies
Active members at staging date If not a jobholder: no information require- No requirement
ment. Assess at each pay reference period
If member is or becomes a jobholder: Two months from staging date, or date
guidance note 3C worker becomes a jobholder
Information to scheme about Guidance note 5 One month from automatic enrolment date
individual’s enrolment or enrolment date
Enrolling into GPP Guidance note 5 One month from automatic enrolment date
or enrolment date
Registration Online registration via TPR website Four months from staging date
Non-eligible jobholder opting in Guidance note 6 One month from enrolment date
Entitled worker joining Guidance note 6 No specific time limit for providing
information to trustees/provider
Opt-out See guidance note 7 No specific requirement to confirm opt-out
and refund but good practice to do so
Re-enrolment Information requirements as above but
could adjust to refer to re-enrolment
Notes
All of these packs and notices must be given in Go to the communications section of the Additional
writing or by email. You can’t just rely on poster resources on the Regulator’s website pages for help with
displays or a website. writing to workers about auto-enrolment.
www.allenovery.com28 Auto-enrolment deconstructed | 2013
7. Compliance
The Pensions Regulator is the primary policeman of
auto-enrolment, although employment law and financial
services regulation also play their part. The Regulator has
published its proposed strategy for delivering employer
compliance. If the Regulator has any queries about
compliance, you can expect an initial informal approach.
If matters escalate, the Regulator may issue a warning letter
and use its powers of inspection and information gathering
before proceeding to the various statutory powers to
enforce compliance and punish non-compliance.
Although criminal sanctions are available, we don’t
expect them to be the first port of call.
© Allen & Overy LLP 201329
Worker protection
Prohibited
Inducements to Right not to Right not to be Contracting out of
Banned behaviour recruitment
opt out suffer detriment unfairly dismissed auto-enrolment
conduct
What can’t the Suggest applicants Any action with the Subject workers to Dismiss someone Agree with worker
employer do? will be screened sole or main purpose any detriment if they for an auto- to exclude or limit
depending on their of inducing a try to enforce their enrolment-related auto-enrolment rights
opt out intentions. jobholder to opt out auto-enrolment rights. reason. Dismissal is or prevent a worker
Includes adverts, or anyone to leave automatically unfair. who has suffered
job description, the scheme (unless detriment bringing
contract offers, they are re-enrolled proceedings.
reference requests. the next day).
Protected: anyone Action doesn’t
who could become have to be
eligible for enrolment successful – breach
during employment. is based on intention
not outcome.
What happens if the Compliance notice: Compliance notice Complaint to Worker can complain Agreement is
employer breaches order employer to ordering employer to employment tribunal. to employment void (unless it is
the ban? take steps to remedy take steps to remedy tribunal – no a compromise
the breach or prevent the breach. qualifying period of agreement in relation
it being repeated. Notice can require continuous service to proceedings).
payment of unpaid is required. Employer cannot
Penalty notice for relevant contributions. recover any payment
contravention or made under
failure to obey Time limit: six the agreement.
compliance notice. months from
Fine of up to £5,000 complaint or four
depending on years from date
employer size. employer is notified
of investigation.
Penalty notice for
failure to obey
compliance notice.
Fixed penalty £400.
Escalating penalty up
to £10,000 per day
depending on breach
and employer size.
Notes
These protections came into effect on 1 July 2012. sole or main purpose of encouraging or persuading a
worker to opt out of auto-enrolment. Talk to us if you
Flex packages or offers of cash alternatives to pension
have any concerns about your benefit packages.
contributions could be inducements, if offered with the
www.allenovery.com30 Auto-enrolment deconstructed | 2013
Other safeguards
Ending active membership or qualifying Failure to comply
scheme status A deliberate failure to comply with key auto-enrolment
Causing a jobholder to stop being an active member of duties is a criminal offence (potential penalties: fines or
a qualifying scheme (except through termination of imprisonment). Directors and officers can be liable.
employment or worker’s request), or causing the scheme
to cease to qualify, is a potential breach of employer duties. Non-payment of contributions
Enrol again from the next day.
Accuracy and flow of contributions to be monitored
by trustees and providers. The Pensions Regulator can fine
Whistleblowing an employer (up to £10,000 per day). Civil penalties up to
Workers who make a protected disclosure (whistleblowing) £5,000 (individuals) or £50,000 (organisations) may apply.
about a breach of auto-enrolment duties will have
protected status.
Keeping records about workers
The employer must keep auto-enrolment records about its For entitled workers
workers and be able to produce them to the Pensions
––Effective date of joining, joining notice.
Regulator when required.
For jobholders and workers who For all workers for whom
become scheme members postponement is used
––Name, NI number and the date the notice
––Name, NI number, date of birth.
was given to the worker.
––For each relevant pay reference period, gross qualifying
earnings and contributions payable (employer and
aggregate) plus dates contributions were paid.
For jobholders
––Auto-enrolment date, opt-in or opt-out notices,
contributions to which member is entitled under
scheme rules.
© Allen & Overy LLP 201331
Keeping records about pension schemes
The employer must also keep records about the schemes
it is using for automatic enrolment.
For an occupational scheme For a personal pension scheme
––Employer pension scheme reference, scheme ––Employer pension scheme reference, provider
name and address. name and address.
––DB schemes only: contracting-out certificate or ––Non-UK schemes only: address of scheme and
evidence scheme meets test scheme standard. name of applicable regulatory authority.
––Non-UK schemes only: the address of the scheme and
name of the applicable regulatory authority.
Notes
If you have used the defined contribution certification and the evidence underlying it for six years from the
process to certify that your scheme meets the quality end of the certification period.
tests for auto-enrolment, you must keep the certificate
Keeping records: the scheme provider/trustee’s duties
The trustees or provider of the pension scheme must also Keeping records: how long for?
keep records and be able to produce them to the Pensions
Most information has to be kept for six years
Regulator when required:
(although schemes may need to keep appropriate
––Active members: name, date of birth, NI number, information longer, for pension scheme administration
gender, residential address, joining date, date ceased purposes). Exceptions to the six-year rule are:
membership (if relevant), membership status.
! scheme quality certificates and underlying evidence
––Jobholders who opt out: name and date scheme was (see above)
informed by employer of jobholder’s decision to opt out.
! opt-out records, which must be kept for four years.
––Employer pension scheme reference.
www.allenovery.com32 Auto-enrolment deconstructed | 2013
8. W
hat else should I be
thinking about?
The auto-enrolment regime isn’t static, and the UK
pensions landscape is changing around it. There are a
number of areas to watch out for.
Looking into the future
As at the time of writing ( June 2013), the government is Restriction on refunds
looking at a range of changes to make auto-enrolment
Refunds for early leavers from occupational money
work more smoothly and to tighten up various
purchase pension schemes are expected to stop in
requirements. Keep an eye out for these changes:
2014 (refunds for opt-outs will continue).
Simplification
Thresholds
–– Aligning contractual enrolment and auto-enrolment to
Thresholds for qualifying earnings and the earnings trigger
allow employers to hold back contributions during a
will change each year, requiring systems to be recalibrated.
contractual opt-out period, and allowing members who
opt out of contractual enrolment not to be immediately
auto-enrolled if they become eligible shortly afterwards. Protection
–– Releasing some workers from enrolment, such as The government plans to restrict account charges such
workers with tax protection (see page 19). as consultants’ fees passed on by employers and higher
–– More flexibility on how pay reference periods are charges once a worker stops being an active member.
defined, to allow employers to align these with tax
periods for normal payroll processes. Small pot transfers
–– Extending the joining window to help with Any early leaver’s money purchase account worth less than
workers who have variable pay. a specified threshold (probably £10,000) may have to be
transferred to the worker’s next automatic enrolment
Business transfers involving TUPE money purchase scheme to build up a “big fat pot”.
Requirement on the receiving employer to provide
minimum pension accrual post transfer could be more
closely aligned with AE.
© Allen & Overy LLP 201333 www.allenovery.com
34 Auto-enrolment deconstructed | 2013
Final checklist
Beyond the immediate auto-enrolment issues, there are a Check standard terms and conditions of employment.
number of other areas you may need to review and adapt What needs to be changed?
to the new regime. Here’s a checklist of employer issues,
Train HR team on recruitment constraints, employee
but think about your schemes too – what do your trustees
protections, enrolment duties and tax protection issues.
need to do? We have been helping the trustees of
numerous pension schemes tidy up their arrangements to Revisit your payroll/flex provider/administration
get the scheme ready for auto-enrolment. Scheme rules, agreements. What needs to be changed?
member communications, administration agreements and Data protection, breach reporting and indemnity
default options all need to be reviewed. cover all need to be checked.
Risk benefits: do you need to change
insurance arrangements?
Review your internal systems: establish protocols
on turnaround times for auto-enrolment duties,
record keeping and contribution arrangements with
trustees/provider.
Salary sacrifice and flex need to work around opt-out
rules. What needs to be changed?
© Allen & Overy LLP 201335
Resources
Pensions Regulator guidance Allen & Overy guidance
The Pensions Regulator’s auto-enrolment webpages Our collection of briefing notes, alerts on developments in
have an extensive collection of step-by-step guidance auto-enrolment, and our series of short video briefings on
notes, flowcharts, resources for employers and tricky issues around auto-enrolment will keep you up to
templates to follow. date as the regime develops:
www.thepensionsregulator.gov.uk/automatic-enrolment.aspx
www.allenovery.com/autoenrolment
DWP guidance Allen & Overy advice
The Department for Work and Pensions has set out
For help with auto-enrolment design and compliance,
guidance on certifying your pension scheme as meeting
talk to us. We know how to solve the really tricky stuff.
the quality standards to be a qualifying scheme:
––Defined contribution schemes: www.dwp.gov.uk/docs/
money-purchase-schemes-guidance-2012.pdf
––Defined benefit and hybrid schemes: www.dwp.gov.uk/
docs/auto-enrol-guid-emp.pdf
The DWP also has a range of resources to help you
communicate changes to your workers: www.dwp.gov.uk/
policy/pensions-reform/workplace-pension-reforms/
toolkit/
Auto-enrolment terms
Expression Page of guide Expression Page of guide
assessment date 11 non-eligible jobholder 7
automatic enrolment date 11 opt-out notice 25
automatic enrolment scheme 17 opt-out period 24
contractual enrolment 10 opting out 25
deferral date 11 ordinarily working in the UK 9
earnings 9 pay reference period 9
earnings trigger 8 postponement 14
eligible jobholder 7 qualifying earnings threshold 8
enrolment date 11 qualifying scheme 18
entitled worker 7 staging date 11
joining notice 21 transitional period 12
joining window 12 worker 9
www.allenovery.comGLOBAL PRESENCE Allen & Overy is an international legal practice with approximately 5,000 people, including some 512 partners, working in 42 offices worldwide. Allen & Overy LLP or an affiliated undertaking has an office in each of: Abu Dhabi Düsseldorf Munich Amsterdam Frankfurt New York Antwerp Hamburg Paris Athens (representative office) Hanoi Perth Bangkok Ho Chi Minh City Prague Beijing Hong Kong Riyadh (associated office) Belfast Istanbul Rome Bratislava Jakarta (associated office) São Paulo Brussels London Shanghai Bucharest (associated office) Luxembourg Singapore Budapest Madrid Sydney Casablanca Mannheim Tokyo Doha Milan Warsaw Dubai Moscow Washington, D.C. Allen & Overy means Allen & Overy LLP and/or its affiliated undertakings. The term partner is used to refer to a member of Allen & Overy LLP or an employee or consultant with equivalent standing and qualifications or an individual with equivalent status in one of Allen & Overy LLP’s affiliated undertakings. © Allen & Overy LLP 2013 I CS1305_CDD-36085_ADD-38306 www.allenovery.com
You can also read
