Auto Enrolment Seminar

Accountants' Division

Preparing for Auto EnrolmentGuidance for Accountants and their clients

David WandlessProfessional Services Trainer


Preparing for Auto EnrolmentAgenda

Welcome & Introduction

• An introduction to Workplace Pension Reform

• The seven steps to Auto Enrolment

• Postponements and on-going reviews

• Opt outs and refunds

• Review - Triennial Re-Enrolment

• Questions & feedback


The 7 Steps


7 steps to Auto Enrolmentfrom The Pensions Regulator (TPR)

1 Know your staging date

2 Assess your workforce

3 Review your pension arrangements

Bureau / Accountants Shared Client’s Responsible responsibility responsibility

Staging profile (volumes of employers)

Planning ahead is key. Very large volumes staging from January 2016

Q1 2015/16 peak includes small and micro employers


7 steps to Auto Enrolmentfrom The Pensions Regulator (TPR)

1 Know your staging date

2 Assess your workforce

3 Review your pension arrangements

4 Communicate the changes to all your workers

5 Automatically enrol your ‘eligible jobholders’

6 Register with the Pensions Regulator and keep records

7 Contribute to your workers’ pensions

Bureau / Accountants Shared Client’s Responsible responsibility responsibility


Point of ContactIt could be you!

Nominating a Point of Contact is a requirement on TPRs website.

https://forms.thepensionsregulator.gov.uk/workplacepensionsreform/nominate.aspx

Not everyone realises you can nominate TWO contacts;

1) PRIMARY - Must be the Director / Company representative

2) SECONDARY - In order to ensure that you are in the best place to support your clients it is possible (and advisable) that the second person is whoever is doing the day-to-day processing of Payroll / AE, i.e. YOU!




Who are my workers & what will it cost?

• People could be subject to the automatic enrolment legislation if they are:

full or part-time

permanent, temporary or casual workers

on ‘zero hours’ contracts

a contractor (even if considered self employed for tax purposes)

agency staff

staff seconded overseas, and/or

home workers.

Which workers may be affected?

Are they a personal services worker?

• The employer needs to judge whether or not an individual (who is not a director) with a contract to perform work or services personally is undertaking the work as part of their own business.

• Does the employer:– have control over an individual’s method of work (eg hours worked)?– provide any employee benefits?– bear all the significant financial risks in carrying out the work

(eg the worker is not financially responsible for their faulty work)?– provide what is required for the individual to carry out the work (eg tools)? If most or all of the above are true, then it would be reasonable to consider

that they are not undertaking the work as part of their own business – and they are a personal services worker.

• The list above is not exhaustive and an employer must take into account all relevant considerations and make a reasonable judgement.


• The workforce should be placed into 3 categories to establish which duties you have towards your workers:

1. Eligible jobholders2. Non-eligible jobholders3. Entitled workers

automatic enrolment

may ‘opt in’ to a qualifying pension

may join a pension

WKR/ER contrib.

WKR/ER contrib.

WKR contrib.

• The next criterion for assigning a category status to your workforce is based on their age and qualifying earnings:

How to place your workers into the relevant categories…

Over £10,000

Betw. £5,824 & £10,000

£5,824

Pay Reference Period Examples

Pay Reference Period 6th-5th (PRP)

Monthly pay £856 (Sally age 23)

6th

Pay-date

5th 25th

Pay Reference Period Mon - Sun

Weekly pay £113 (Paul age 24)

Mon

Pay-date

Sun Fri

PRP Lower level of

qualifying earnings

Earnings trigger for automatic enrolment

1 week £112.00 £192.001 month £486.00 £833.00

Sally: is an eligible jobholder and will be auto-enrolled Paul: is a non-eligible jobholder who can opt inJack: is an entitled worker who can join a scheme

Monthly pay £480 (Jack age 21)

6th

Pay-date

5th 25th


Question : If someone is a personal services worker, but is not on PAYE, how could an employer deal with this?

Answer: It does not matter whether a person is paid through PAYE or not

- If they are considered a worker they will need to be assessed and automatically enrolled if eligible.

- An employer could continue to pay them directly, without deducting tax and national insurance, but make a deduction for their pension contributions as and when appropriate.

Questions and answers


• The minimum total contributions are being phased in over the next 5 years

• The minimum legal requirement rates by law are as follows:

How Much?Contribute to your workers’ pensions

• The worker will receive tax relief on their contribution

• Employers should pay the contributions to the pension scheme by the 19th/22nd of the following month

Dates Worker Contrib. Difference *

Min. Employer Contribution

Minimum Total Contribution

From Staging date to 30th Sep 2017 1% 1% 2%

From 1st Oct 2017 3% 2% 5%

From 1st Oct 2018 5% 3% 8%

* If the employer contribution is sufficient to make up the minimum total contribution, then no worker contribution will be required.


Although MOST companies will use the table on the previous slide, there are alternative ways of implementing AE as follows;

How Much?Contribute to your workers’ pensions

Pensionable PayWorker Contrib.

Difference

Min. Employer

Contribution

Minimum Total

Contribution

Total Qualifying Earnings

1%3%5%

1%2%3%

2%5%8%

Pensionable Pay at least 85% of Total

1%3%5%

1%2%3%

2%5%8%

Basic Pay*1%3%5%

2%3%4%

3%6%9%

* Calculation starts from £1 of earnings


ExampleCalculations under AE

Monthly pay £1800 (Peter age 23)

PRP Lower level of qualifying

earningsEarnings trigger for automatic enrolment

Upper level of qualifying earnings

1 month £486.00 £833.00 £3,532.00

£1800 – 486 = £1,314 pensionable pay

Dates Worker Contrib. Difference



From 1st Oct 2018 5% 3% 8%

5% WKR £65.70 (Peter = £52.56 / Tax relief = £13.14)3% ER £39.42

Total Contribution 8% £105.12


ExampleAnother example (capped)

Monthly pay £5000 (Julie age 43)

PRP Lower level of qualifying

earningsEarnings trigger for automatic enrolment

Upper level of qualifying earnings

1 month £486.00 £833.00 £3,532.00

£3532-£486 pensionable pay = £3,046

Dates Worker Contrib. Difference



From 1st Oct 2018 5% 3% 8%

5% WKR £152.30 (Julie = £121.84 / Tax relief = £30.46)3% ER £ 91.38

Total Contribution 8% £243.68


• Workers get categorised based on Age / Qualifying Earnings & whether they are a UK worker

• Qualifying Earnings are usually all Ni-able earnings, but there are some exceptions

• Using the Qualifying Earnings model, pensions are calculated on Qualifying Earnings between the Lower Threshold and the Upper Threshold, not on all earnings

• It is a legal requirement to send the right letter to the right person at the right time and the letters must match very specific requirements

Key things to remember (2)In brief…


Additional Admin Steps…


• Not all existing pension schemes will be suitable for AE

• Anyone on an existing pension scheme can stay on that as long as contributions at least meet minimum AE requirements

• Some companies may need / want more than one pension scheme

• Usually you need to perform the initial assessment earlier than expected (because 1st of the month is in the prior Tax Period)



• Postponement is possible BUT it adds a level of complication and additional administration. Employers MUST NOT use postponement because they are not ready

• Any employee who has been postponed can ask for this to be reversed and the EMPLOYEE’s Decision is final

• Postponements can be used; At Staging For new starters Where an employee has had a ‘temporary’ Pay Spike Where an employee turns 22 so becomes Auto-Enrolable

• Every time you postpone you MUST tell the worker this has been done (by letter)



PostponementExample 1 – Pay Spikes

AssessAuto-enrolment

Trigger £833

Postponement Postponement

Re-A

ssess

Erica – 30 years old – PRP from 6th to 5th of the next month

£850£840£830£820£810£800£790£780


When to make the assessment

Tax Period including Staging

date

Worker’s starting

date

22nd birthday

16th birthday

Opt-in or joining notice

Deferral dates

PRP


• Anyone who is Auto Enrolled can chose to Opt Out

• If they Opt Out in the first month (after receiving notification they have been enrolled) they can get a refund of any contributions already made

• Non-Eligible Job Holders can choose to Opt In (and then the employer needs to contribute also)

• Entitled Workers can choose to join a pension but the employer doesn’t have to contribute

• Every 3 years anyone who has Opted Out more than 12 months ago needs to be re-enrolled



• As it stands at present, SINGLE directorships where there are no other directors / workers do NOT need to do Automatic Enrolment

• It is advisable however to inform TPR that they will not be complying

• Multiple Directorships (even Husband/Wife teams) depends on what CONTRACTS the directors hold. If they do not have any written contracts AND there are no other workers they are also exempt.

• However, if there are any other workers, or is any of the ‘directors’ have a written contract (as an employee or worker would have) then ALL in the business are to be included and assessed as any other business.

Directors


Consequences of non-compliance…


It isn’t optional!The ConsequencesThere are consequences if an employer fails to comply with their automatic enrolment duties.

It is a criminal offence for an employer not to:• set up in first place• auto-enrol all Eligible workers• re-enrol every 3 years!

It is also a criminal offence for an employer to:• Force employees to opt out or to even suggest it would be viewed

positively


It isn’t optional!The Consequences

PenaltiesTPR can compel employers to comply with their auto-enrolment duties and The Regulator can impose a penalties on employers who fail to comply.

Update Quarter 1 this year; Stage 1 – Approx. 5000 compliance notices (warnings) were issued Stage 2 - In the last first 9 months of this year 400 firms were hit with a

£400 fine Stage 3 - In some cases, TPR can impose a daily penalty of between £50

and £10,000 depending on the number of employees affected. So far they have issued 5 fines, which were at the level of £500 per day…


Thank you!Any Questions?

Economy & Finance

Auto Enrolment Seminar