Employers should find out all they need to know about auto-enrolment as soon as possible.
There are key facts that all employers planning for auto-enrolment should know. Gillian McNamara, policy lead, employer compliance regime at The Pensions Regulator (TPR), says: “There is one crucial figure to know even before developing a plan to comply with the new duties, and that is the number of people employers had on PAYE [pay as you earn] in April 2012. “Knowing this figure means an employer can find its staging date and plan the actions it will have to do before then.”
Employers should also understand the rule of postponement, which allows them to postpone auto-enrolment for one, some or all employees for up to three months.
Christopher Barnes, pensions consultant at Xafinity, says: “The option of postponement periods may well be a useful tool for employers to most eff ectively align their payroll processes with the requirements of auto-enrolment.”
Employers should also have a good grasp of what constitutes an ‘eligible employee’ for the purpose of auto-enrolment. Jeremy Levene, head of marketing at Ceridian, says: “Workers are identified as individuals who either have a contract of employment or a contract to perform work. It is advisable to check with an employment lawyer which people are determined as workers.”
Pension costs should also be at the forefront of employers’ minds. Richard Wilson, senior policy adviser at the National Association of Pension Funds (NAPF), says: “The charges for Nest [national employment savings trust], Now: Pensions and The People’s Pension might be useful for employers to be aware of to allow them to compare the costs.”
Nest, Now: Pensions and The People’s Pension are multi-employer trusts. Now: Pensions charges an administration fee of £1.50 a month per employee plus a 0.3% annual management charge (AMC); The People’s Pension has a 0.5% AMC only; and Nest makes a 1.8% charge on the value of each contribution along with an AMC of 0.3%. There is no cap on contributions paid into the schemes offered by Now: Pensions and The People’s Pension, but Nest has a cap of £4,400 a year, which includes all money paid in by the employee, the employer, and tax relief.
In November, the government launched a consultation into Nest’s annual contribution limit and restrictions placed on transfers to ascertain whether these are dissuading employers from using Nest. The consultation will close at the end of January 2013.
Contribution levels for defined contribution (DC) schemes are, by default, based on qualifying earnings, or employers may choose certification, which bases contributions on an alternative definition of earnings. The Department for Work and Pensions has identified three tiers of certification.
Iain Oliver, head of workplace saving development at Aviva, says: “Say an employer has employees earning £20,000 in basic salary but £100,000 in bonuses. To save money, it can certify contributions on the basis that limits the definition of earnings to base salary, so when you apply the 8% or 9% contribution level, it ison basic salary rather than total earnings.”
Employers that do not use certification face initial contribution levels of 1%, with staff contributions starting at 2%. Tim Middleton, technical consultant at the Pensions Management Institute, says: “To allow employers to adapt to the costs of auto-enrolment, contributions to DC schemes will gradually increase over a period of years”.