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Under new law, all employers are now responsible for providing their employees with a workplace pension.
Read our complete guide for tips on how to implement a Defined Contribution pension scheme in your workplace.
What is the Workplace Pension?
The workplace pension is a government-enforced, automated pension scheme, whereby both an employer and their employee make regular monthly payments into the employee’s pension fund.
Over the next five years, all employers will be required to implement a workplace pension in their business via ‘automatic enrolment‘. Employees will have a chance to opt out if they want to.
When you are expected to roll out an automated workplace pension scheme will depend on your company’s staging date. If you do not set up the scheme before the staging date, you may face a fine from the Pensions Regulator.
Who Will Be Eligible for a Workplace Pension?
The workplace pension will involve employees who:
- Are aged between 22 and State Pension age
- Earn at least £10,000 a year
- Work in the UK.
When Must I Implement My Workplace Pension Scheme?
You must have your pensions scheme up and running by your staging date, no later. Your staging date is based on the number of people in your PAYE (Pay As You Earn) scheme, and can be calculated using the Staging Date Calculator tool on the Pensions Regulator website.
You will need to enter your company’s PAYE reference into the calculator to discover your staging date. Your PAYE reference can be found on a P6/P9 coding notice from the tax office or on your P30BC white payslip booklet.
The staging dates stored by the calculator tool were initially determined on April 1 2012. If at this time you had fewer than 50 staff and/or were part of a PAYE scheme will more than 50 people, you may be eligible to move your staging date (see below). There are also other exceptions that may determine your staging date (see below).
If you have staff in more than one PAYE scheme, you will need to enter the details of each scheme into the calculator.
Exceptions to Staging Dates
In some cases, your staging date may be different to that generated by the Staging Date Calculator. These include the following:
- You have already agreed a modified staging date with the Pensions Regulator.
- You set up your business after April 1 2012
- You have acquired a different PAYE reference since April 1 2012 (in this case you would enter your old PAYE reference into the calculator tool)
- You have certain types of staff but don’t have a PAYE scheme (in this case, your staging date will be April 1 2017)
- You had fewer than 30 staff on April 1 2012, no staging date associated with your PAYE reference, and are not affected by any other exceptions listed here (in this case your staging date will be April 1 2017).
Modifying your Staging Date
If, at the time of April 1 2012, you had fewer than 50 staff or were part of a PAYE scheme with more than 50 people, you may be eligible to push back your staging date.
You can view a list of prescribed staging dates to which you can choose to move below.
[twocol_one]Original Staging Date
1 October 2012 and 1 November 2012
1 January 2013 and 1 February 2013
1 March 2013 and 1 April 2013
1 May 2013 and 1 June 2013
1 July 2013 and 1 August 2013
1 September 2013 and 1 October 2013
1 November 2013 and 1 January 2014
1 May 2014 and 1 April 2014
1 May 2014 and 1 July 2014
1 August 2014 and 1 October 2014
1 November 2014 and 1 January 2015
1 March 2015 and 1 April
[twocol_one_last]Optional New Staging Date
1 August 2015
1 October 2015
1 January 2016
1 February 2016
1 March 2016
1 April 2016
1 May 2016
1 July 2016
1 September 2016
1 November 2016
1 February 2017
1 April 2017
What if I Set Up My Business After April 1 2012?
If you set up your business after April 1 2012, you too will be eligible to push back your original staging date to the new one prescribed, as shown below.
[twocol_one]Date of first payable PAYE income
1 April 2012 – 31 March 2013
1 April 2013 – 31 March 2014
1 April 2014 – 31 March 2015
1 April 1 2015 – 31 December 2015
1 January 2016 – 30 September 2016
1 October 2016 – 30 June 2017
1 July 2017 – 30 September 2017
1 May 2017
1 July 2017
1 August 2017
1 October 2017
1 November 2017
1 January 2018
1 February 2018
Can I Bring My Staging Date Forward If I Wish?
You may wish to bring your staging date forward to align better with your business practices, such as the start of your financial year. If this is the case, you will need to notify The Pensions Regulator (TPR) either online, by post or by email.
To bring your staging date forward online, you must have the following information:
- Your unique 10 digit letter code (this can be found on all correspondence from the Pensions Regulator; if you do not have one you can ask for one)
- Your PAYE reference
- Your Government Gateway User ID (you will have the option to create one the first time you log in).
Available early staging dates are as shown below. You may choose from any that best suits your business.
1 January 2018
[box]When notifying the TPR of your new staging date, you must supply the following:
- Name of employer/business
- PAYE scheme reference(s) that you operate
- Original staging date and the new earlier staging date
- Business postal address
- Email address
- Name of most senior accountable person at the employer (optional)
- Companies House (or equivalent) registration number
- Employer declaration that you have a pension scheme in place and have agreement from trustees or managers that this scheme will comply with employer duties from the staging date
- Your name
- Your job title
- You contact phone number, address and email address
- Your own written declaration of your eligibility to apply for a new staging date.[/box]
You will receive written confirmation from TPR when it has received your notification and your new staging date will take effect automatically. Your declaration should be submitted within five months of the new staging date.
How Do I Enroll My Employees Into the Workplace Pension?
Once you know your staging date, you will need to know how to enroll eligible employees into the workplace pension.
It is important to work with your pension provider closely during the months leading up to your staging date, to ensure they have everything need from you in advance. Carry out a data check with all of your employees to make sure you hold all the latest information, and check with your provider how long it will take to create membership for each employee.
You will need to supply your pension provider with the following details for each employee:
- Date of birth
- National Insurance number
There may be other info you need to provide, depending on an individual’s circumstances.
Paying Into Your Scheme
If you are using your scheme for automatic enrollment, you will be required to pay in a minimum amount each month by law. Otherwise, your pension provider will inform you of its own minimum payment amount.
The minimum for automatic enrollment schemes is determined by your staging date (though you can choose to pay more if your wish). These are shown below.
30 September 2017
1 October 2017 – 30 September 2018
1 October 2018 onwards
[threecol_one]Minimum Contribution for Employer
[/threecol_one] [threecol_one_last]Minimum Total Contribution
To find out your minimum contribution, you can use the TPR’s Minimum Contribution Calculator tool.
Other things to consider
- Employee contributions are deducted automatically from their salary each month. You will need to decide which part of their salary you wish to deduct the percentage of contribution from – their basic pay; bonuses; overtime? You will also need to let both your provider and payroll know of this decision, as well as the contribution rate per employee.
- Some employees will be eligible to get a tax-free rate on their pension contributions up to a certain amount each year. Ask your provider who may be eligible for tax relief and how much.
- Employer contributions must be paid on time each month, or you risk a fine from TPR. This date will be decided by your provider.
- Employee contributions deducted from staff salaries must be paid no later than 22nd of each month, as determined by law. This becomes the 19th when paid by cheque.
You must keep records of all contributions made for six years. This includes:
- Staff gross earnings
- Contributions due and contributions paid (for both staff and employer)
You must tell your provider when there are changes to a scheme member’s earnings or entitlement, or when someone joins or opts out of the scheme (see below).
How Can My Employees Opt Out?
Your staff will have one month to opt out after being automatically enrolled. You will need to talk to your provider to find out:
- How employees may opt out if they wish
- Who is responsible for handling opt-outs
- How and when you will be notified of an opt-out
- How quickly opt-outs are processed and for contributions to be refunded.
Can New Employees Join the Scheme?
Both newly hired employees and employees who weren’t eligible for automatic enrollment will have the option to join your scheme if they wish.
Simply find out from your provider what information they will need from you.
I Already Have My Own Pension Scheme; Can I Use it for Automatic Enrollment?
Your pension or Defined Contribution scheme will need to meet two sets of criteria to used for automatic enrollment. One criteria is for continuing to use the scheme for already-enrolled members; the other is for enrolling new members.
For more details, you can use TPR’s Defined Contribution Qualifying Scheme Tool.
Contributing to your employees’ pension funds will inevitably be an extra cost for your business that must be budgeted for accordingly. Fortunately it will not produce any additional tax liabilities as your contributions can be offset against corporation tax and are not subject to employer National Insurance contributions.
Nevertheless, it is essential to plan early to avoid having to make unexpected cuts in crucial areas of your business. From 2015 onwards, employers will be spending an extra 3% on each of their employees on top of their salary. Other costs to consider include:
- Opt-out rates. You should prepare as if 100% of eligible employees will be opting out of the scheme.
- Infrastructure. Are your payroll/HR technology and software systems able to handle the increased demand? Consider an update if you are unsure.
- Salary sacrifice. By employees agreeing to reduce their salary, both employers and staff can pay less in National Insurance contributions, thus reducing your firm’s costs.
What Information Do I Need to Give My Staff?
Before auto-enrollment, you should inform staff exactly of what is going to happen, and the choice they have ahead of them.
Ensure that they know:
- The date the scheme will come into place
- Whether or not they will be automatically enrolled, and if not, whether they would like to join the scheme
- The minimum amount they will be expected to contribute
- Which parts of their salary will be deducted from and which parts (if relevant) are exempt
- Whether they are eligible for tax relief on their contributions
- How they can opt out, and how long this can be expected to take.
The Pensions Regulator has a collection of poster and letter templates on its website that you can use in the workplace to inform your employees of the changes. It will also supply you with answers to any questions your staff might have about the scheme.