Some Misconceptions about Pensions Auto Enrolment
With Pensions Auto Enrolment becoming a reality for small businesses over the coming months we thought it would be useful to respond to some of the misconceptions we have heard since we started helping business making a success of their Auto Enrolment obligations.
It’s an option whether I choose to do this or not
Sadly not! If you have workers, or in some cases contract people on a consultancy basis (see worker definitions below), then you will be required to comply with the Auto Enrolment Legislation.
A worker is defined by The Pensions Regulator as any individual who:
- works under a contract of employment (an employee), or
- has a contract to perform work or services personally and is not undertaking
the work as part of their own business (note: this may be a sub contractor who works solely for one client)
I only employee one person so this doesn’t apply to me
Compliance with the Auto Enrolment legislation isn’t dependent on a minimum number of workers, if you employ one or over ten thousand workers, as an employer, you will be required to assess their eligibility against age and earnings every pay reference period, offer a Qualified Workplace Pension Scheme, enrol workers on this scheme and communicate along with other auto enrolment employer duties.
I have asked my employees if they would stay in the pension when auto enrolled and none will, so I don’t need to do anything
Irrespective on whether your workers opt to stay in your pension scheme or leave, you will be required under the legislation, to have a pensions scheme in place and be able to assess and enrol any workers on your staging date.
If all my employees opt out, then I don’t need to do anything else
No, you will still be required to assess your workers every pay reference period as some employees may trigger enrolment (if for example their salary fluctuates, or they reach a relevant birthday) alongside assessing any new employees on joining your company. In addition you will be required to re-enroll employees every three years.
I can decide the amount of contribution I will pay
Employers will be required to comply with the minimum pension contribution levels, which if you use the standard pensionable pay definition, will be 1% rising to 3% from 2018-19. If you want to use Pensions Auto Enrolment as a method to attract and retain workers, the legislation allows you to provide a higher level of contribution, along with removing the lower and upper pensionable earnings limit, the earnings level where pension would apply, which currently sits at £5,824 for the lower and £43,000 for the upper.
If a Worker remains in their company’s Workplace Pension Scheme, they will be required to contribute 1% minimum contribution initially, if they are enrolled before October 2017, rising to 5% from 2017-18. Their employer may allow them to contribute above this level through Additional Voluntary Contributions (AVC) so it is worth asking if this is available
My accountant will deal with Auto Enrolment for me
The first thing to do is to confirm what support they can offer you, as Pensions Auto Enrolment isn’t just about setting up a pension scheme. Some accountants will provide an end-to-end Pensions Auto Enrolment solution including assessment software, communication capability, pension deduction and payment processing, but others won’t which means you will either have to do those elements yourself or find another supplier. However you choose to do this and whoever you engage to help, all of the above will need to be in place before your staging date and remember that ultimately it is the business owner’s responsibility to ensure they discharge their employer duties correctly.
If I ignore this it will go away
No it won’t! The Pensions Regulator is monitoring enrolments and has the power to pass down a range of non-compliance penalties. These can range from ‘compliance notices’ requiring actions to be completed within a specific timescale, £400 fixed penalty notices if compliance actions haven’t been addressed, to an escalating ‘Penalty Notice’ with a penalty ranging from £50 to £10,000 per day, ultimately up to two years imprisonment for willful failure to comply.
While every caution has been taken to provide the reader with most accurate information and honest analysis, please use your discretion before taking any decisions based on the information provided in this article. Petaurum Solutions will not compensate the reader for any loss/inconvenience/damage because of/while making use of information in this article.