Pensions auto-enrolment challenges for charities
From October 2012 the Government's new automatic workplace pension enrolment legislation came into force under which all employers, including charity employers, will have to auto-enrol certain of their staff into a pension to which the employer will have to contribute. This will be done on a staged basis according to size of organisation. The largest organisations in the country, including charities, have now had their "staging date".
In this publication I hope to address some of the challenges you will face in preparation for your staging date, and in the next issue I will address some of the employer duties at your staging date and what your administration duties will be on an ongoing basis. I'm going to try and explain this in layman's terms to make this as clear as possible for you to follow which will allow you to make more informed decisions as a charity employer.
What is automatic enrolment?
Automatic enrolment is an employment legal requirement with regards to workplace pensions. For the first time the onus of workplace pensions has been shifted firmly onto the organisation with an estimated 220 duties you must adhere to.
Organisations must automatically enrol workers who are eligible (eligible jobholders) and inform other workers (non-eligible and entitled workers) of their right to join your workplace pension that meets the Government's criteria known as a "qualifying pension scheme". You must pay contributions for your workers in the scheme as well as deducting their personal contributions from their pay and paying them into the scheme on their behalf.
The definition of the three categories of workers above are dependent on age and earnings. The date the law will take effect for your charity is known as your staging date.
When will it affect us?
Organisations which operate on a volunteer "no paid staff" structure are not required to set up a pension scheme. On 1 April 2012 the Pensions Regulator assessed every organisation with a PAYE reference to determine its staging date. This is the date your workplace pension must be in place. The method was that the largest charities would stage first numerically down to 30 workers. For charities with less than 30 employees the last two characters of your unique PAYE reference were used to determine your staging date.
You may or may not know your staging date yet but this information can be established by contacting the Pensions Regulator or by seeking assistance from a professional. You will automatically receive notification from the Pensions Regulator no later than 12 months prior to your staging date and then another reminder will be issued three months from your staging date. The Pensions Regulator understands how much planning is involved in this process and they are giving you a years notice. It is imperative that you start planning when you receive this notification – at the latest!
Where do we start?
The first thing you will want to know is how much is this going to cost?
This is a very tricky question as there is no accurate way of telling how many of your eligible jobholders are going to "opt out" and how many of your non eligible jobholders are going to "opt in". Eligible jobholders have a window to choose not to participate in the scheme and non eligible jobholders have a right to opt in where you will be legally required to contribute on their behalf.
There is no legal requirement to pay contributions for an entitled worker (you can if you want) but you still have to let them know they have a right to join the scheme if they want to make personal contributions.
Even if an eligible jobholder tells you in advance they do not wish to participate they must still be automatically enrolled and they must go through the process of 'opting out'. Until you know the outcome of who is opting out and who is opting in it's safer to work on a worst case scenario basis - i.e. all eligible jobholders stay in the scheme and all non eligible jobholders opt in. You cannot ask your workers what their intentions are prior to your staging date as this can be seen as discouraging staff and financial penalties will apply if this comes to light.
The first thing you will need to do is to categorise your workers into the three categories to determine their status. The definition of each category can be found on the Pension Regulator's website.
You then have to decide what contribution structure you are going to use. There are a number of "qualifying" options available all of which allow you to phase in your contribution levels up to October 2018. Dependent on how your workers are paid could have drastically different outcomes in terms of cost.
Phasing of contributions is where you can start your premiums off at a low level gradually increasing to the minimum requirements for that particular option. You may see the cheapest option as the way forward but you must consider that this may not be the easiest to administer and your payroll provider may not have the functionality to provide the relevant information required.
Who will provide my workplace pension?
You must now find which provider is going to accept your pension scheme if you do not already have one. If you have an existing scheme please check with your current provider that they are willing to continue on the same basis and that it meets the qualifying criteria, at your staging date and beyond.
Do not assume that every private pension provider will accept every scheme as this is dependant on a number of factors. The only provider which is guaranteed to accept every new workplace pension scheme is the National Employment Savings Trust (NEST) which is run by the Government and is a qualifying scheme. You must also devise an installation plan on how you are going to get your workplace pension up and running.
Communicating with your workers
There are a number of different sets of communications you must send out to your staff. I will cover what must be sent when your scheme goes live in the next issue of the magazine. Prior to your staging date you must also send out communications, some are law and some are seen as good practice.
If you have over 50 workers you are legally obliged to go through an "employer consultation". This will be an announcement to your workers on what your intentions are with regards to your workplace pension. This may include information such as the provider you are using, the contribution structure and what your staging date is. For a unionised organisation the minimum requirement is 90 days and for a non unionised organisation this is 60 days.
If you have less than 50 workers it is still seen as good practice to go through this process to demonstrate your are communicating effectively with your workers. In the months leading up to your staging date the Government is encouraging you to publicise the pending changes to your staff to make them aware of what is about to happen. This may include things like office posters and pay slip inserts.
What if I do not comply?
I have already said, the Pensions Regulator knows the staging date of every organisation in the country. Once your scheme is live you will have four months from your staging date to register your workplace pension with the Pensions Regulator. If you have not registered your scheme by the fourth month after your staging date the three stage penalty process will commence.
The financial penalties for failing to comply or getting this wrong are severe so I strongly recommend that if you are not comfortable with the process you seek help as soon as possible.
In the next issue of the magazine I will look at the installation of your workplace pension, how to defer your assessment date and the ongoing employer administration duties you must perform. I will also look at a case study to help you understand why this can be so complex.