AUTO ENROLMENT: ELIGIBILITY

Transcription

1 PENSIONS PROFILE JUNE 2012 AUTO ENROLMENT: ELIGIBILITY Summary Starting from 1 October 2012 (exact staging dates will depend on the number of employees), all employers will need to segment their employees into different categories of workers who meet specific eligibility criteria. They need to do this to identify who needs to be automatically enrolled. There will be three different categories of workers: Eligible jobholders (workers who must be automatically enrolled into a pension scheme. Non-eligible jobholders (workers who have the right to opt-in to a pension scheme) Entitled workers (workers who have the right to join a pension scheme). Employers must monitor those individuals who may not currently be eligible, but could become so in the future. For example, younger employees turning 22, or anyone whose regular or parttime/overtime earnings rise above certain levels. Categories of workers. Eligible jobholders: So-called because they are eligible for automatic enrolment, these are workers who: are aged at least 22 and below state pension age are working, or ordinarily working, in the UK have qualifying earnings payable by the employer in the relevant pay reference period that are above the earnings trigger for automatic enrolment (currently 8,105). ANY QUESTIONS? If you have any questions or comments in relation to this article, please pensions.technical@landg.com

2 Non-eligible jobholders: So-called because they are not eligible for automatic enrolment but can choose to opt in to a pension scheme, and benefit from an employer s contribution. These include workers who are either: aged at least 16 and under 75. working or ordinarily working in the UK. have qualifying earnings payable by the employer in the relevant pay reference period that are above the lower earnings level for qualifying earnings (currently 5,564) but below the earnings trigger for automatic enrolment (currently 8,105). or, aged at least 16 and under 22 or between state pension age and under 75. working or ordinarily working in the UK. have qualifying earnings payable by the employer in the relevant pay reference period that are above the earnings trigger for automatic enrolment (currently 8,105). Entitled workers: Co called because they are not subject to automatic enrolment but are entitled to join a pension scheme. The employer does not have to make a contribution on their behalf. These are workers who: are aged at least 16 and under 75 are working, or ordinarily working, in the UK have qualifying earnings payable by the employer in the relevant pay reference period that are below the lower earnings level for qualifying earnings ( 5,564).. Age (inclusive) --> Earnings Under lower earnings threshold ( 5,564) Between 5,564 and 8,105 Over earnings trigger for automatic enrolment ( 8,105) State pension age Non-eligible worker Entitled worker State pension age - 74 Non-eligible worker Eligible worker Non-eligible worker The eligibility criteria listed above may sound straightforward. It is however a complex area requiring an employer to correctly identify who in the workforce is an eligible jobholder. Employers will have to assess employees on a number of occasions (e.g. the relevant staging date, the start date of employment, a person s 16th and 22nd birthdays and the date the employer receives an opt-in notice). It will still be necessary to continually check every pay reference period to see if non-eligible jobholders/entitled workers circumstances have changed and they move into another category.

3 Many workers circumstances are different e.g. agency workers, secondees, self-employed contractors, workers who are resident outside the UK, seasonal workers and workers with fluctuating earnings. Agency workers The decision as to who is responsible for the auto enrolment requirements of agency workers is determined by which party holds the contract of employment. An agency worker is commonly described as an individual supplied to work for a third-party. If a recruitment agency holds the contract of employment for an individual and there is an arrangement between the agency and the third-party for the provision of services, it will be the agency that will be required to conduct the auto enrolment duties. Secondees These individuals remain the responsibility of the company from which they are seconded. One-person companies If a director is the sole employee there is no requirement to auto enrol. However, if the company were to take on another employee both the new employee and the director would be subject to the auto enrolment requirements. Self-employed contractor An individual working under a contract for services with an employer is not normally a worker. Assessing whether a worker is working or ordinarily working in the UK This is a subject that opens up many strands of complication especially with contract-based schemes. On the one hand the DWP s auto enrolment regulations place a duty on an employer to auto enrol their UK workers into a pension scheme but on the other the FSA stipulate where a pension provider can market their contract-based pension arrangements. An example of how this can become complicated is easily illustrated with employees working for a company based in Northern Ireland with the employee a resident in the Republic of Ireland. The UK based employer is obliged to auto enrol this employee, however the pension provider could be construed as marketing their product outside of the UK and unless the pension provider has the appropriate passporting rights to market in that territory they will be in breach of the distance marketing directive for which the FSA has responsibility. Trust-based schemes do not have the same limitations placed upon them. If a worker is not wholly working in the UK it is necessary to determine whether they are ordinarily working in the UK. To do this the employer needs to establish: where the worker begins and ends their work where their private residence is, or is intended to be where the worker s headquarters is whether they pay NI contributions in the UK what currency they are paid in. These factors are important when assessing workers such as pilots, seafarers etc. Where an UK-based employer sends a worker outside the UK on a placement the employer will need to satisfy themselves that the worker s base remains in the UK despite the placement overseas. If it does the worker is deemed to be ordinarily working in the UK. In such cases the employer will also need to

4 consider whether the worker s contract remains with the UK employer and that there is an expectation that the worker will return to the UK after their placement has finished. A non-uk employer sending a worker to the UK to work for a UK affiliated employer will also need to make an appropriate assessment. If the employee s base is not in the UK they would not be considered ordinarily working in the UK. Qualifying earnings An important eligibility criteria that needs to be assessed is whether the worker has qualifying earnings in the relevant reference period. For the purposes of assessing eligibility, qualifying earnings are PAYE earnings between 5,564 and 42,475 and include: salary, overtime, commission, bonuses, sick pay, maternity, paternity and adoption pay. Pay reference period A pay reference period will be the worker s normal pay period. For example, those paid weekly will be assessed over a week whereas those paid monthly are to be assessed based on their monthly pay. Pay comprises salary, commission, bonuses, overtime, statutory sick, maternity or paternity pay. The following examples are taken from the Pension Regulator s guide Assessing the workforce. Stewart receives a fixed basic salary, regardless of how many hours he has worked in the month, and is paid monthly. This is paid on the last working date of the calendar month. This payment relates to work done during the period from 1st of the month to the end of the month. E.g. the pay reference period for March runs from 1 March to 31 March. The first day of the next pay reference period is 1 April. Ann receives a fixed, basic salary regardless of how many hours she has worked in the month, and is paid monthly. This is paid on the 23rd of each month. The payment relates to work done between 24th and the 23rd day of the following month. Ann s March pay reference period runs from 24 February to 23 March. Jermaine is paid weekly on a Friday for the hours worked during the week, beginning on a Monday and ending on the Sunday. His pay reference period runs from Monday to Sunday. Mira receives her pay on a Friday for the hours worked during the week, beginning on a Saturday and ending on that Friday. Mira s pay reference period runs from Saturday to Friday. Depending on the length of the worker s pay reference period the thresholds are as follows: Pay reference period Lower level of qualifying earnings (2012/13) 1 week Fortnight weeks month quarter 1,391 2,027 Bi-annual 2,782 4,053 Annual 5,564 8,105 The earnings trigger for auto enrolment

5 So, if the worker s earnings are above the earnings trigger (in the table above) and the worker is aged at least 22, below state pension age and working in the UK then they are an eligible jobholder and if not already an active member of a qualifying scheme they must be auto enrolled. If earnings are between the two limits and the worker is working in the UK they have been identified as a non-eligible jobholder. If not already an active member of a qualifying scheme they would be eligible to opt-in and benefit from the employer contribution. Finally, if the worker s earnings are below the qualifying earnings threshold and they work in the UK they are deemed an entitled worker. If not already a member of the scheme they can ask to join but the employer need not contribute. The key word is payable. Payable means earnings actually paid in the pay reference period, also what is due to be paid, or was due to be paid, in the pay reference period. This means that an employer must consider what is due to be paid in the relevant pay reference period, regardless of to what period that payment relates. For example, if a bonus is due to be paid in March in relation to performance in January, then this is included in the qualifying earnings due to be paid for March, not January. Payable does not mean earned. This is important to remember where a worker is paid in arrears, the employer considers what is due to be paid in this period, not what is due to be earned. The employer must now continue to monitor the status of non-eligible jobholders and entitled workers to see if they ever satisfy the auto enrolment criteria. Only when the jobholder s pay breaches the trigger for their appropriate pay reference period does the employer need to deal with auto enrolment. If an employer chooses not to use the permitted waiting period (of up to three months), then the eligible jobholder must be auto enrolled immediately. Waiting periods may be beneficial in dealing with jobholder receiving one-off pay spikes (please see Pensions Profile: Auto-enrolment: Postponement/Waiting Periods for more details). Change of category If, when a worker first becomes an eligible jobholder, they are already an active member of a pension scheme (such as having opted-in to a scheme as a non-eligible jobholder), the employer must simply assess whether the scheme in which the worker is an active member is a qualifying scheme. If the scheme meets the qualifying criteria in respect of the worker, then the employer will be complying with their duties and need take no further action in respect of the worker with regards to auto-enrolment at this time. State Pension Age Being below the state pension age is a key eligibility requirement and to make matters more complex, these ages have changed for both men and women, and are set to change again. Women born between 6 April 1950 and 5 December 1953 will have a state retirement age between 60 and 65. Both men and women born between 6 December 1953 and 5 October 1954 will have a state retirement age between 65 and 66. The rise from age 66 to 67 will be brought forward for those born between 6 April 1960 and 6 April It is anticipated that the rises to age 68 between April 2044 and April 2046 (currently affecting those born after 6 April 1977) will ALSO be brought forward. Directgov s state pension age calculator is a useful tool to calculate employees state pension ages.

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