Pensions pot

What is the basic duty?

Since October 2012, UK companies have started to have to automatically enrol certain eligible employees into pension schemes.  A company’s ‘staging date’, following which they must comply with their auto enrolment (AE) obligations, is based on the number of eligible employees in its PAYE scheme as of 1 April 2012.  These duties will continue to apply once a company has gone into administration.

How do I know when a company’s staging date falls?

If you insert the company’s PAYE number into the tool found on the Pensions Regulator’s website, it will come up with its staging date.

If a company has passed its staging date before it goes into administration, the IP will either need to continue to comply with the company’s AE obligations or put right any incidents of non-compliance (see further below).

Who needs to be enrolled?

You must enrol all eligible jobholders into a qualifying scheme. Eligibility is broadly defined by reference to age, pay and employment status.

When?

Broadly, within six weeks of the jobholder’s AE date, so either:

  • the company’s staging date;
  • the jobholder’s start date; or
  • the date on which he becomes ‘eligible’.

The company can postpone a jobholder’s AE date for up to three months.  The company needs to continuously monitor all employees who are not eligible jobholders, because as soon as they fall into the relevant age category and earn more than the earnings trigger, they will need to be enrolled into an AE scheme.

What should I tell employees?

All employees need to be sent information about AE (what they are told will depend on their status), but only eligible jobholders must be enrolled.

The law[1] prescribes the information which needs to be sent to employees.  Template letters for employers to use may be found on the Regulator’s website.

What happens if the company does not comply with its AE duties?

The Regulator is able to impose a range of penalties, including significant fines (the maximum level of which rises with the size of the company). Employees can cite breach of the employer duties in an unfair dismissal claim.

If the company has passed its staging date when it goes into administration but has not complied with its AE duties, early communication with the Regulator is key. While the Regulator is able to impose penalties, it is inclined to work with employers (and, by extension, IPs) to put things right.

If the company hasn’t reached its staging date but does reach it once the IP is  appointed, it is the IP who is responsible for making sure that the AE obligations are met and that could be something that easily slips through the net.

What else do I need to know?

Once enrolled in an AE scheme, eligible jobholders have one month to opt out, if they wish to do so.  Whether the employer provides jobholders with the paperwork required to opt out will depend on the circumstances of each case, but employers must not induce eligible jobholders to opt out of AE.  If a jobholder opts out, contributions deducted from his salary are refunded to him and he is treated as never having been a member of the scheme.  Eligible jobholders who have opted out must be re-enrolled every three years.

Crucially, a company’s employer pension contribution requirements may exceed its previous pension expenses; in an insolvency with a large workforce, this could mount up.

This post was edited by Jill Walters. For more information, email blogs@gateleyuk.com.

[1] Pensions Act 2008.


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.