Many small employers who auto-enrolled staff into a workplace pension for the first time in 2017 are now facing auto re-enrolment. What do you need to know to ensure a pain-free process?
Ongoing duties
Ensuring that staff regularly consider workplace pension savings is at the heart of the re-enrolment process. The government decided when it introduced auto-enrolment in 2012 that to reverse the inertia that existed in respect of stakeholder pensions, where few employees voluntarily decided to join a pension scheme, it would require the employer to make that decision on behalf of the employee subject to certain qualifying criteria. The employee could then opt out of workplace pension saving if it wasn’t appropriate for them at that time. But, to ensure that this wasn’t a one-off opportunity to save, employers would be required to automatically re-enrol eligible jobholders on a triennial basis, but still with the opportunity for the individual to opt out again. For many small employers, who were the last to auto-enrol in 2017, their re-enrolment dates have arrived and it will be the first time that they have undertaken this exercise.
Which employees?
The employees that must be re-enrolled are those that have ceased active membership of a qualifying pension scheme or reduced their contributions below the statutory minimum. The statutory minimum at the moment is a total of 8% contributions, of which 1% can be tax relief and 3% must be the employer contribution. There is no requirement for an employee to contribute, the employer can pay the full contribution which would then be 8% as there is no tax relief to be claimed on an employer contribution. Pension contributions set up as an optional remuneration arrangement mean that this has become a non-contributory pension scheme, as the employee reduces their pay in exchange for an enhanced employer pension contribution. The employees within the eligible group (no longer a member/paying too little) will be re-enrolled if they are aged between 22 and under state pension age, earn more than £10,000 per year (for 2020/21), ordinarily work in the UK and opted out of pension saving more than twelve months ago.
Pro advice. Your payroll software or pension provider may be able to provide you with a report that highlights which employees need to be re-enrolled.
Choose your date
The first step is to choose your re-enrolment date. This can be any time in a six month window that starts three months before the third anniversary of your original staging date and ends three months after the third anniversary. For example, if you auto-enrolled for the first time in July 2017, your re-enrolment window runs from 1 April to 30 September 2020.
Pro advice. If you use an agent to process your payroll do have a conversation with them about your chosen re-enrolment date, remember it’s an employer duty to re-enrol it’s not for your payroll agent to remember and prompt you. You should check too if there is an additional charge for the agent to complete your re-enrolment duties and whether they will do the re-declaration for you. Don’t assume that the agent will do the re-declaration. If somebody doesn’t do it, you could be fined.
Pro advice. It’s important to pick your date carefully, as you need to consider a date which best aligns to all the payrolls you operate, particularly if they are different pay frequencies. Unlike every other month, and when you auto-enrolled for the first time at your staging date, postponement (when you delay assessing an eligible jobholder for up to three months) is not available for re-enrolment.
Who can you ignore?
There are numerous categories of employee that you can exclude and do not need to consider for re-enrolment, those who:
- Are making active contributions to your qualifying workplace pension at, or above, the minimum contribution level.
- Have opted out of pension scheme membership in the last twelve months (there is clearly no point re-enrolling somebody who has only just decided that pension saving is not for them, so they’ll be picked up at the next re-enrolment).
- Have not yet triggered auto-enrolment as an eligible jobholder (that means they are either too young or too old or don’t earn enough).
- Are in a postponement period at the re-enrolment date.
- Are not classed as an “eligible jobholder” on the re-enrolment date.
- Are due to leave within three months (this could be an important exclusion now as there as so many people being given their notice due to coronavirus) or who have been dismissed.
- Have lifetime allowance protection (an employee who has lifetime allowance protection should have given you their registration number so that you can record it as proof of why you excluded them from re-enrolment).
- Are directors of their own limited company.
- Are partners of a limited liability partnership.
Pro advice. What you absolutely must not do is exclude an employee who says they simply don’t want to rejoin. It’s a legal requirement for them to be re-enrolled and that must happen first and then they can opt out within the first month and receive their contributions back.
What earnings count?
You must consider what’s payable in the whole pay period, irrespective of whether the re-enrolment date falls part way through a pay reference period. So, it’s usually better to pick a re-enrolment date that falls on the first day of a pay reference period.
Communicating with employees
In the same way as when you first auto-enrolled on your staging date, you have six weeks to complete the re-enrolment process in terms of establishing membership of a qualifying pension scheme and writing to employees to confirm that. Letters should be sent to those workers who are joining the pension scheme following re-enrolment, confirming their membership from the re-enrolment date and their ability to opt out again should they wish to. It is the same letter as you will have sent to any employee who is being auto-enrolled, there is not a separate letter for re-enrolment. There is no requirement to write to employees who are not being re-enrolled.
Re-declaration of compliance
Even if you don’t have any employees to re-enrol you still need to re-declare your compliance to The Pensions Regulator (TPR). It will have written to you to remind you that your re-declaration date is approaching and of your individual employer code that you will need for the re-declaration process. You’ll need to include details of yourself, i.e. the person who has authority to re-declare, such as the payroll manager or business owner, details of the company, the PAYE scheme reference and the number of active members, re-enrolees and exempt employees (this must add up to the totals of your workforce on the re-enrolment date) and of course the name of the qualifying pension scheme that you are using. TPR provides a simple tool to guide you through re-declaration (see Follow up). You must re-declare within five calendar months of the third anniversary of your staging date so if your re-enrolment date was 1 July 2020 you must re-declare by 1 December 2020, otherwise you could be fined. TPR will write and acknowledge your re-declaration. You then need to do this all over again in another three years’ time.
The normal assessment
Check if your payroll software needs to carry out two separate assessments in the re-enrolment pay period: one for the re-enrolees and one for the employees who have become eligible jobholders in that pay reference period. Some payroll software will combine both assessments, but you don’t want to ignore eligible jobholders who have just triggered an auto-enrolment duty but are not included in the re-enrolment assessment.
Pick your date carefully, as you need to consider one which best aligns to all the payrolls you operate, particularly if they are different pay frequencies. Your payroll software or pension provider may be able to provide you with a report that highlights which employees need to be re-enrolled.
The next step
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.