The Complexities Of Auto Enrolment Pension Schemes
Running a business in the 21st century is very different from what it was 40 or 50 years ago. This is because there is so much more legislation than there was back then. There are just so many things that you must do as an employer today that were not required in previous years.
One of these is that, as an employer, you must have a pension scheme available for your employees. This was first brought in under the Pensions Act 2008 and it was designed to encourage workers to save for their futures. As of October 2017, all new employers have instant duties concerning pensions from the moment that they take on their first employee. This date is known as the Duties Start Date.
When you have employees, they may fall under one of three different categories. These are first an Eligible Worker; this is anyone who is over 22, under State Pension Age (SPA) and who earns more than £10,000per year. Then you have an Entitled Worker who is aged 16 – 74 and earns less than £6,240 per year.
The third category is an Ineligible Worker who is aged between 16 and SPA or SPA and 72 and earns more than £10,000 per year or is aged between 16 and 74 and earns more than £6,240 per year but less than £10,000.
If none of your workers come under the eligible worker category you do not have to set up a pensions scheme unless one of your ineligible or entitled workers asks to join a pension scheme, in which case you do. However, you still need to write to all employees with a Declaration of Compliance.
All making sense so far?
The next thing is that all eligible workers must be enrolled on your company pension scheme. They can choose to opt out, but not until they have been enrolled. However, there are certain exceptions, these are an eligible employee who has pension protection, the directors of a limited company and the partners in an LLP (Limited Liability Partnership). When you enrol an eligible worker, you have to contribute to his or her pension pot.
If an ineligible worker asks to be enrolled onto the pension scheme, you must enrol them and you also have to contribute to their pension pot.
An entitled worker can also ask to be enrolled onto the pension scheme and the same thing applies, except that you do not have to contribute to their pension pot unless you choose to do so.
You also have to write to all employees, telling them about the pension scheme and their right to opt in if they are not automatically enrolled. You can choose to write to employees based on their status, or you can send one letter to all which covers everything. All of these communications must be sent within 6 weeks of the ‘Duties Start Date’ and thereafter all new employees must receive the information within 6 weeks of their employment.
You can also choose to delay auto enrolment for up to three months, but you must still write to all staff within the 6-weekperiod.
Then of course, you have the situation where an eligible employee opts out. You have to re-enrol that employee every three years, when they can choose to opt out again or remain in.
There is no doubt that it is all very complex which is why, at Pay Check, we offer auto enrolment pensions administration for our clients. Our auto enrolment pensions administration will take care of all of this for you and ensure that you remain compliant.