In the light of news that businesses, including Newport County AFC, have been fined for not following the correct pension auto-enrolment procedures, Robin Hall, managing director of Newport-based Kymin Financial Services, explains what firms should be doing...

The Pensions Act 2008 contained a number of measures that were geared to encourage private pension saving. All eligible workers who are not already in a qualifying workplace pension scheme would be automatically enrolled into their existing employer scheme as long as it meets minimum standards in terms of benefits that it provides and the amount of contributions that are paid into it. In many cases a new scheme would need to be set up, from a variety of pension providers including the government default scheme, the National Employment Savings Trust, sometimes known as NEST.

For workers paying into their employer’s pension scheme, contributions will also be supplemented by contributions from the employer and also an element of tax relief from the Government.

This all started in October 2012, which saw the introduction of some major changes in pensions which will by 2018 affect every single employer in the UK.

As our population in the UK is growing, living longer, and perhaps not saving enough for retirement, the government is seeking to increase the level of retirement saving through the workplace. The state pension age is also rising and the Government on their own can no longer afford to provide all the benefits for us in retirement.

Employers have to ensure that the total minimum contribution must be made to the pension scheme

There are seven steps to auto enrolment that all employers must be aware of.

You must be aware of your Staging Date, this is determined by your PAYE reference number in most cases.

You must then assess your workforce, to find out who must be automatically enrolled, whether an employee is non-eligible or entitled to join the scheme and this is determined by factors such as an employee’s age and how much they earn.

Then review your existing pension arrangement if you have one in place, to make sure they can support the auto enrolment duties. If your existing scheme does not qualify, you may be able to change the scheme rules or amend the terms of the policy. If you haven’t got an existing scheme in place then you must look at setting a new one up.

Then communicate the changes in legislation to all your workers whether they are eligible to join the scheme or not.

Then you have to automatically enrol your eligible jobholders and some others who may wish to join anyway.

You must register with The Pensions Regulator and complete a “Declaration of Compliance” and keep records for a minimum of six years.

Finally, you have to deduct pensions from the employees’ wages and then make contributions to the scheme on their behalf in a timely manner.

There are other rules and ongoing duties that an employer must adhere to along the way including re-enrolling any workers who may have opted out every 3 years.

The minimum contribution levels that an employer must pay into their employee’s pensions will be introduced gradually, this is known as phasing. The minimum employer contribution will change from one per cent to three per cent by 2019 and in most cases from 1% to 5% employee contributions.

There is a cost to employers that fail to comply with the rules. The Pensions Regulator is able to issue compliance notices, penalty notices and fines if employers break the rules. Penalties will be given for providing false or misleading information to the Regulator, failing to make contributions, or failing to enrol eligible employees (including re-enrolling people who have opted out). It will be an offence to induce employees to opt out of a pension scheme, or recruit new staff on the understanding that they will opt out. Employers that fail to comply will be issued with a fixed penalty of £400 followed by penalties of between £50 and £10,000 a day depending on the number of employees and the scale of the offence.

There have been a number of non-compliant employers being exposed by The Pensions Regulator recently. Between January and March 2017, there were 14,502 fixed penalty notices issued along with 2,517 escalating penalty notice These figures have been increasing and more and more smaller employers are coming to their Staging Dates.

The Pensions Regulator will also publish details of those who have paid their EPN and as a result have been made subject to a court order. Locally, once such offender has been Newport County AFC which was subject to a £4,500 fine early this month for non-compliance with further action to be taken against them by The Pensions Regulator.

The whole area of auto enrolment and pensions in general can be a complex one and very often employers don’t have enough knowledge or resources to implement a pension scheme on their own.

Taking professional advice from a firm of financial advisers such as Kymin can alleviate much of the hassle in the setting up of a scheme. We can work with your accountants or payroll provider to implement the scheme in a timely and cost effective manner, allowing you to get on with what you do best, running your company!