Automatic enrolment: How business advisers can help their clients to choose a pension scheme

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1 Automatic enrolment: How business advisers can help their clients to choose a pension scheme Choosing a workplace pension scheme is something that many small and micro employers will need to think about when automatically enrolling their staff. They will need to either set up a new scheme or check their existing scheme meets certain criteria. Research from The Pensions Regulator shows that while some employers are confident and willing to do this themselves, many will seek help and support from their business adviser. This article will help you to understand what you can do to help them either by researching and recommending a scheme yourself, or by making them aware of the considerations to take into account when choosing a scheme, and telling them where to go for more information. You can support your clients in choosing a pension scheme in a number of ways: provide factual information, for example you could identify the pension schemes available and provide a comparison of the schemes investment funds, charges and services recommend a specific pension scheme for automatic enrolment refer your client to another adviser you can use websites such as the Money Advice Service retirement adviser directory, which contains advisers who can help employers choose a pension scheme for automatic enrolment I am not registered with the FCA can I still advise my client on which scheme to use? You can recommend a specific pension scheme to your client so long as you are providing this advice in their capacity as an employer rather than an individual providing an individual with investment advice will need the appropriate authorisation from the Financial Conduct Authority. It may not always be clear whether an employer is seeking advice as an employer or an individual, for example if your client is thinking about joining the scheme themselves. You may want to specify in your letter of engagement that any advice you provide to a client is provided in their capacity as an employer and not as an individual. If you belong to a professional body they will have a set of ethical standards that you should refer to, which may include that you have sufficient knowledge and experience to offer automatic enrolment services. You should also check to make sure that any automatic enrolment work that you carry out is covered by your professional indemnity insurance.

2 What considerations should I/my clients take into account when choosing a scheme? Using an existing pension scheme Check with those running your client s pension scheme to see whether they can use it for automatic enrolment. If your client can't use their scheme, they'll need to choose a new one that meets the requirements for automatic enrolment. It s important to look at different schemes to weigh up the different features offered before deciding which is suitable for your client and their staff. You need to think about whether the scheme will accept all your client s staff, how much it will cost and whether it will work with your client s payroll software. Choosing a new scheme Employers are increasingly using schemes run by large, specialist providers that are designed to be used by many different employers. These include 'master trusts' that are run by a board of trustees and 'group personal pensions' that are run by financial service companies, for example insurance companies and investment managers. TPR has a list of schemes on its website which have said that they are open to all employers and which have either had their pension schemes independently reviewed or are regulated by the Financial Conduct Authority. Tax treatment You should be aware that different schemes apply different tax relief arrangement relief at source, or net pay arrangement. If your client has staff who don t pay income tax, it's important to check that the scheme uses relief at source as they would still get tax relief from the government. However, some schemes using other tax relief methods may have lower member charges. So your client should consider carefully what is right for their staff. More information about tax relief in pension schemes can be found on TPR s website Investment options Any scheme used for automatic enrolment must have a default investment arrangement. This is where contributions will be placed, as staff cannot choose their own investments when automatically enrolled (but they can make a choice after). Charges paid out of member savings in default investment arrangements must be no higher than 0.75% a year of the member s fund. You may also need to consider whether the scheme offers investment options that suit the particular needs of your client, such as ethical funds or funds that comply with Sharia law. Compatibility with payroll software While payroll software can t choose a scheme on your client s behalf, it s important to know that some may be more compatible with certain pension schemes than others. Payroll software can also help with other automatic enrolment tasks. For example, it is likely to be able to help identify who must be put into a pension scheme. Payroll software can also help calculate contributions and manage ongoing duties.

3 Additional services Pension schemes may offer extra services, such as working out who needs to be put into a pension scheme, processing requests to join the scheme or helping with ongoing duties. Your client will need to write to staff individually to explain how automatic enrolment applies to them, including how tax relief works. Some pension schemes may offer to do this on their behalf. If the scheme doesn t do this, we have letter templates which you/your clients can use. Payroll software may also offer this service. If English isn t the first language of all your client s staff, you may also want to check whether the scheme can provide communications in other languages. How much is setting up a pension scheme likely to cost? You should ask the scheme provider what charges your client and their staff will pay. Different providers charge in different ways, for example an ongoing monthly charge or a one off up front charge for the life of the pension scheme. Some schemes may also have an exit fee for employers who change pension schemes. Pension scheme members pay charges to cover the cost of managing their savings. Some schemes may have different charges for different members. For example, some schemes may have lower charges for low paid staff, which may mean that these staff pay less for their pension, even if the scheme uses net pay arrangements for tax relief. You may want to help your client weigh up the costs and charges against the level of services that the scheme will provide. Some services may make automatic enrolment easier for your client over the long term. TPR recommends employers have a pension scheme in place six months before their staging date Taking the time beforehand to research and compare different costs and service levels will help ensure your client chooses a scheme that is right for them and for their staff. Useful links Business advisers choosing a pension scheme for clients Your role in helping clients choose a scheme What to consider when choosing a scheme Find a new pension scheme for clients

4 Automatic enrolment: Work out who you need to put into a pension scheme All employers who have at least one worker will have automatic enrolment duties. You ll need to assess your staff, put those who meet certain criteria into a pension scheme (and make contributions to it), tell them what you ve done, and complete a declaration of compliance. Assessing your staff is a key step to take to comply with your automatic enrolment duties. Quite simply it means considering the age and earnings of the people you employ and identifying who needs to be automatically enrolled and who doesn't. Formal assessment of staff Not every member of staff needs to be automatically enrolled. It depends on their age and earnings those who earn above 192 of qualifying earnings in a week (or 833 in a month) and who are 22 or over (but under state pension age) must be put into a pension scheme. If you employ staff whose hours vary (e.g. zero hours contract), pay fluctuates, are seasonal or are on short term/temporary contracts the legal duties will still apply to you. If any of your staff fall outside of the above age and earning criteria then you only need to put them into a pension scheme if they ask. The Pensions Regulator has a tool on their website to help with your assessment checker. NB: If you ve worked out that you don t have staff to put into a pension scheme, it s important to know that you still have other tasks to carry out in order to meet your legal duties you will still have to write to individual staff members to tell them how automatic enrolment applies to them. The Pensions Regulator has templates on their website that will help you with this. Which earnings qualify for automatic enrolment? Qualifying earnings include wages, salary, fluctuating elements of pay, bonuses, and some statutory payments, such as maternity and sick pay. We recognise that not all pay elements fit neatly inside these headings, and a good rule of thumb is that if earnings are subject to National Insurance contributions, then they are likely to also qualify as earnings for automatic enrolment. Payroll software should help with this, and also where earnings fluctuate on a week by week or month onmonth basis. Many payroll providers already provide a module or an add on for automatic enrolment that will do this earnings number crunching for you, as well as calculating the correct contributions, and helping with your ongoing duties. Look at your payroll software to find out how it can help you with automatic enrolment. What do I need to do once I ve assessed my staff? Having worked out what you need to do for each person you employ, the next step is to then put those that you need to into a pension scheme and to write to each person individually.

5 Unless you want to use an existing pension scheme for automatic enrolment, you ll need to find a scheme yourself or get help from your accountant or a financial adviser. The Pensions Regulator has information that can help you with this Once you ve chosen which pension scheme you want to use, you ll need to give your pension scheme provider information including staff name, address, date of birth and earnings, so that they can set up your staff in the pension scheme. Each time you pay your staff you will need to calculate how much you (and they) need to contribute in and arrange for this to happen. Payroll software may help do this for you. Popular questions One of my staff has a second job with a different employer; do I have to take this into account when assessing them? You only need to consider staff who are employed by you. Their earnings from another employer do not form part of your assessment. If a member of staff s earnings are less than or equal to 192 a week, must they be put into a pension scheme? If your member of staff s earnings are less than or equal to 192 a week ( 833 a month) you do not have to put them into a pension scheme that you pay into, unless they ask to join the scheme. However, you will still have other duties which include writing to all staff individually and completing your declaration of compliance. Use The Pensions Regulator s Duties Checker to understand the specific duties you have. I'm the only director of my own company do automatic enrolment duties apply to me? If you are the sole director and you have no other staff working for you, the company does not have automatic enrolment duties. If you have received a letter from The Pensions Regulator but you do not have automatic enrolment duties, then you will need to tell them that you re not an employer. Failure to alter them to your circumstances may trigger compliance action go to checker now. What if my business only has directors? You won t have any automatic enrolment duties if any of the following apply: you are the sole director you are all directors, none of you has an employment contract you are all directors, only one of you has an employment contract Automatic enrolment will apply if more than one director has a contract of employment. In this case, if your client does have automatic enrolment duties for a director, and the director meets the age and earnings criteria above, your client is not required to automatically enrol them unless your client chooses to do so. More information on assessing your staff for automatic enrolment can be found on checker

6 Automatic enrolment: What business advisers need to know about postponement Research by The Pensions Regulator has shown that there is now almost universal understanding among business advisers of the tasks that need to be carried out for employers to comply with their automatic enrolment duties. An area which continues to prompt questions from advisers is postponement a useful tool for employers, especially those who employ temporary or seasonal workers. Key points An employer can temporarily postpone the assessment of workers for automatic enrolment purposes for up to three months. Postponement can be used for all of the employer s staff or just some of them. If your client postpones from their staging date, the staging date does not change. If your client chooses to postpone from their staging date, they still have duties (eg they must write to tell the staff who will be postponed, within six weeks of their staging date). The declaration of compliance date does not change this remains as 5 months after their staging date. Postponement cannot be used with re enrolment. If the staff meet the criteria to be enrolled on the re enrolment date, then re enrolment must take effect from that date. Why would an employer use postponement? One of the main reasons your clients might decide to postpone the assessment of their workers is if they have temporary or short term staff who they know will stop working for them within three months. For example, seasonal fruit pickers. Using postponement can also be helpful when assessing those staff whose earnings would usually fall below the earnings threshold, but where an increase such as a bonus might temporarily take their earnings over the trigger level. If your clients apply a probationary period to new starters, then it can be helpful to use postponement to delay assessing these individuals until after their probationary period is passed (assuming it is not longer than three months). Your clients might also choose to use postponement in order to align automatic enrolment with their other business processes. For example, if your client s staging date falls in the middle of a pay period, it may be helpful to postpone to the beginning of the next pay period. When can postponement be used? Your client can postpone automatic enrolment from: their staging date a staff member s first day of employment the date a staff member first becomes eligible for automatic enrolment If your client postpones from their staging date, it doesn t change their staging date.

7 Your client can postpone for up to three months. They can postpone as many or as few staff as they like and the postponement period doesn t have to be the same length for everyone. Note that staff can choose to opt in to your client s pension scheme during the postponement period. More information on what to do if this happens can be found on TPRs website. What action to take? An employer can postpone an individual, some, or all, of their staff. If they do, they must write to these staff within six weeks of the date that postponement starts, to tell them: that their assessment has been postponed the end of postponement date, and that they have the right to opt in or join a pension anytime. TPR have a sample postponement letter on their website that can be used to write to staff at: to your clients staff There s no need to tell TPR that a client has decided to use postponement. And remember the declaration of compliance date will not change. What happens at the end of the postponement period? On the last day of the postponement period, your client will need to know whether each staff member, whose assessment they ve postponed, is eligible to be automatically enrolled if they still work for them. If they are eligible, your client must put them into a pension straight away. You cannot postpone again. This is true even if they postponed for less than the three months allowed. However, if any are not eligible, then they will need to be monitored every pay cycle from then on, to see if they become eligible in the future. If they do become eligible, you could then apply postponement again in respect of them. Common postponement questions Can we use postponement more than once? Yes, but only for staff who are assessed as not eligible to be automatically enrolled on the last day of the postponement period. Where a member of staff is eligible to be enrolled, you cannot postpone again and you must put them in a pension scheme (as explained above). If a member of staff asks to join my pension during the postponement period, when do I start paying money into the pension? If any member of staff writes asking to join a pension, you need to assess what they have earned and how old they are in the pay period when you receive the notice that they want to join. Useful links library/automatic enrolment detailed guidance