Behind the headlines: AE turns five and the workplace pension becomes the norm

On AE’s (auto-enrolment’s) fifth birthday, today, the workplace pension has become a business norm.

As of today, it is a “legal duty to put staff straight into a workplace pension as soon as they employ them” writes the Financial Adviser. In preparation, The Pensions Regulator has launched a “new online suite of information and tools for start-up businesses auto-enrolment”.

The Financial Adviser continues; “since 2012, more than 8.5m more people have begun saving into a workplace pension, while nearly 800,000 employers have met their automatic enrolment duties”.

Despite this however, “research published in May revealed that one in four small firms (25%) have missed their deadline for auto-enrolment”.

It is therefore vital that businesses are equipped with the essential knowledge to successfully enrol employees.

As such, what does the normality of the workplace pension mean and what are the costs?

No more staging dates…

Any newly created PAYE scheme will have auto-enrolment obligations as soon as they employ, or use personal service workers, who are aged between 22 and state pension age and who are earning (pro-rated to their pay frequency) more than the earnings trigger (£10,000 p.a. 2017/18, but subject to annual review).

This immediate obligation, or ‘duty start date’, replaces future staging dates, which continue until February 2018 for PAYE schemes in existence up to 30 September 2017.

…but we can still postpone

Employers will still be able to defer worker and jobholder assessments that segment individuals in to eligible, non-eligible and entitled workers for up to three months. This was known as ‘postponement’ and will, from today, be known as ‘deferral’.

And re-enrol

All PAYE schemes will still be subject to a triennial re-enrolment for eligible jobholders who have opted out, and immediate re-enrolment for those returning to the UK from overseas.

A hurdle for overseas employers

You should be aware that pension providers are unable to offer a pension scheme to overseas employers that do not have a UK bank account as anti-money laundering regulations requires there to be a UK bank account for employer contribution refunds to be paid into. Nest (national employment savings trust) do accept employer and employee pension contributions from employers via credit card if they do not have an UK bank account but this doesn’t solve the refund problem.

Budget for those imminent increases

All businesses should be well aware that employer pension contributions increase to 2% from April 2018 and 3% from April 2019. A doubling of contributions is a significant on-cost for any business but particularly for micro-businesses who have just staged so are only just getting used to pension costs, and for any business re-enrolling around April who will also see their pension population increase. The Pension Regulator is keen to avoid contributions in April being paid at two different rates so, unless your pension scheme rules preclude this, any pay date that falls on, or after, 6th April 2018/2019 the whole of that pay period’s pensionable pay will be subject to 2% contributions.

My advice: any employer who pays the voluntary living wage should bear in mind that these rates go up in November annually and the statutory living wage is also likely to be reviewed in April 2018.  

Opt-outs up?

What no one can predict is the increase in pension scheme opt-outs next April, as employee contributions also increase to 3% (a 300% increase for those on the minimum). It’s obviously good advice to remain a pension scheme member if you can afford it, as you get an employer contribution and tax relief too. So, can your pension scheme allow employees to remain a member but pay less than the statutory minimum? It’s quite legal to do this, just every three years on re-enrolment the employee contribution will increase to the current statutory minimum and can then drop down again.

For more information, support with and guidance on auto-enrolment, visit: http://www.thepensionsregulator.gov.uk

Supporting source: https://www.ftadviser.com/auto-enrolment/2017/09/29/regulator-acts-to-help-last-firms-join-auto-enrolment/