Politically, pensions auto-enrolment has proved to be a huge success, with 7.8 million workers at 550,000 employers so far enrolled into a workplace pension scheme for the first time. For workers, the future success of the auto-enrolment project is less certain, with current annuity rates promising little return on a contribution of 1 per cent of earnings. For HR professionals, the majority of whose employers will already have passed their automatic enrolment staging date, the regime now consists of ongoing compliance and risk management issues.
The Pensions Regulator continues to proactively police auto-enrolment compliance. In the first quarter of 2017 alone, it issued 4,673 fixed-penalty notices, 1,043 escalating penalty notices and 227 inspection notices (allowing it to attend and inspect premises where it believes there has been non-compliance).
So what do HR professionals need to be aware of in terms of managing their workforce for pension purpose?
Check who needs to be automatically enrolled
The Pensions Act requires employers to auto-enrol workers who ordinarily work in the UK. In most cases, it will be self-evident who is a worker; however, if your organisation employs non-regular categories of staff (such as self-employed or agency workers) you should review each individual case to determine if they have worker status and seek legal advice if appropriate. Also, the fact that a worker ‘ordinarily working’ in the UK is covered means you may need to auto-enrol foreign nationals working in the UK, as well as UK nationals working overseas on a temporary basis, provided they expect to return to work in the UK.
Beware changes of worker status
Not all workers need to be auto-enrolled; only those who are ‘eligible jobholders’ – ie workers who earn more than £10,000 a year and are aged between 22 and the state pension age.
Workers aged 22 to state pension age who earn less than £10,000 but more than £5,876 do not need to be automatically enrolled, but they may opt in and their employer will then have to pay contributions on their behalf. This group is called ‘non-eligible jobholders’.
The final category, ‘entitled workers’, fall outside these age and earnings thresholds. They have a right to opt in to membership but their employers do not have to pay contributions.
Workers can move between these bands throughout the course of their working life; therefore, as part of your three-year re-enrolment cycle for any individuals who have opted out of membership, you need to put in place arrangements to monitor and process changes to jobholder status.
Manage your HR processes
It is crucial that your HR processes are managed correctly. This covers several areas, but in particular you should ensure your systems are aligned with your pension scheme provider so that contributions are correctly deducted from salary and remitted to the provider in the appropriate timeframe, and any benefits (eg death benefits) are paid promptly.
You should also make sure you are prepared for the phased increase in minimum auto-enrolment contributions; currently, most employers are just paying minimum contributions of 1 per cent of earnings. This will increase to 2 per cent by April 2018 and 3 per cent by April 2019. Failure to do this could expose both you and the provider to the risk of future claims.
And you should ensure your team is fully briefed on auto-enrolment matters, so that they do not fall foul of the prohibitions on recruitment conduct (ie asking anyone at interview if they intend to join the pension scheme), or the prohibition on offering members inducements to opt out.
If you have not done so already, you may also wish to update your standard terms and conditions for new joiners to reflect auto-enrolment. This will give you the flexibility to alter your pension arrangements (subject to compliance with auto-enrolment) in the future.
Review your provider
You should review your provider from time to time to check they are doing a good job for your members. One approach is to put in place a specific service-level agreement and key performance indicators to ensure the provider is performing within an agreed framework. You should also review the performance of the default fund and any charges levied on members to ensure members are receiving value for money and are not being asked to bear excessive costs.
Andrew Campbell is head of pensions at Doyle Clayton Workplace Lawyers