Am I legally compliant? Legislation and auto enrolment Law

A straightforward guide to the key things you’ll need to do to provide your employees with a compliant workplace pension scheme that’s suitable for auto-enrolment.

What employers must do

Set up a workplace pension scheme

You must have a workplace pension scheme in place by your staging date that meets the auto-enrolment criteria. If you have an existing pension scheme, this may be suitable for auto-enrolment, but it must meet the following conditions:

  • It must have a suitable default investment scheme that all employees’ pension contributions will be invested in, unless they decide they want to choose their own investment options.
  • The pension provider/trustees agree that the existing pension scheme can be used for auto-enrolment.
  • The level of pension contributions that you and your employees contribute to the pension scheme must meet the minimum levels set for auto-enrolment.
  • All employees who meet the auto-enrolment criteria must be enrolled into the pension scheme.
Issue regulatory communications

There are certain regulatory communications that you must issue to your employees to ensure they are fully informed about auto-enrolment. These communications should tell your employees:

  • When your workplace pension scheme will be available for them to join.
  • Who will be auto-enrolled and who can choose to join the pension scheme or opt-in.
  • How they can opt-out if they choose to leave the pension scheme.
Declare your compliance

You’ll need to inform The Pension Regulator that you have a compliant workplace pension scheme. To do this, you will need to complete a declaration of compliance online within five months of your staging date.

If your declaration of compliance is not completed, The Pensions Regulator will not see your auto-enrolment duties as being fulfilled - you could be liable to be fined. Your declaration of compliance can be completed on your behalf by another party i.e. a financial adviser.

Perform auto-enrolment duties

Once your workplace pension scheme is in place, you will still have on-going auto-enrolment duties that you’ll need to keep on top of. You’ll need to:

  • Assess your staff each time they’re paid to see if any additional employees need to be auto-enrolled. This may be because their earnings have increased or they have had their 22nd birthday since they were last paid, meaning they’re now eligible to be auto-enrolled.
  • Perform re-enrolment duties on a triennial basis – once every three years, you’ll need to re-enrol any eligible jobholders who have left your pension scheme or ceased paying pension contributions.

What employers cannot do

Entice employees to leave your pension scheme

You must not in any way entice employees to leave your pension scheme. This is known as “inducement” - employees have the right to inform The Pensions Regulator if they feel as if they’re being forced to leave a workplace pension scheme.

Close your workplace pension scheme

You cannot close your workplace pension scheme without having another workplace pension scheme in place. The new workplace pension scheme must be suitable for auto-enrolment purposes.

Key advice for employers

Don’t miss your staging date

If you’re late for your staging date, this could result in you being fined or prosecuted by The Pensions Regulator. You may need to back pay not only the employer pension contributions that you have missed, but also pay missed pension contributions on behalf of your employees. If you feel you’re at risk of missing your staging date, contact The Pensions Regulator and let them know.

Choose the right pension provider for you

Before you choose your pension provider, it’s worth considering how much time you’ll have available to spend on your auto-enrolment duties and think about the level of service and support that you will need.

Use postponement if you need to

If you have a valid business reason to do so, you’re able to postpone assessing your staff by up to 3 months. This can allow you to adjust the timing of the assessment of your workforce to suit your business needs.

Fines and penalties

How to avoid getting a penalty

To avoid getting a penalty, you will need to fulfil all of your auto-enrolment duties. This means that you must:

If you are in danger of breaching your auto-enrolment duties, it’s always worth getting in touch with The Pensions Regulator as soon as possible to let them know what you’re doing to resolve this.

What sort of fines and penalties could I face?

It is recommended that you speak to The Pensions Regulator as soon as possible if you’re struggling to put a compliant workplace pension scheme in place.

If you repeatedly fail to meet auto-enrolment duties, then you will face escalating fines. If you fail to comply after receiving multiple fines, continued avoidance of your duties can lead to legal action and eventually to a prison sentence of up to two years. However The Pensions Regulator is committed to working with employers who communicate and cooperate with them. As long as you are actively taking steps to fulfil your auto-enrolment duties and keeping The Pensions Regulator informed, legal action can be avoided.

Types of notice

There are a number of different types of notices that you will receive from The Pensions Regulator if you are in breach of or are in danger of breaching your auto-enrolment duties:

A formal notice

A formal notice is the first warning that you will receive if The Pensions Regulator need further information from you or believe that you’ve breached your duties. You will need to provide any information that The Pension Regulator has requested or take steps to ensure you are compliant with auto-enrolment regulations.

A compliance notice

A compliance notice will outline how The Pensions Regulator thinks that you have breached your duties, what steps you need to take or stop taking in order to become compliant and give you a time frame as to when this needs to be completed by.

A third party compliance notice

A third party compliance notice will inform you that a person or group acting on your behalf is liable for you not fulfilling your auto-enrolment duties. Although you will not be expected to do anything after receiving this notice, it will make you aware that the third party is at fault and the date by which the third party will need to take action.

An improvement notice

An improvement notice will be received after you’ve been issued with a formal notice. This will inform you of the steps you need to take and the date they will need to be completed by.

An unpaid contributions notice

An unpaid contribution notice will be issued if The Pensions Regulator believes that you have failed to pay contributions into the workplace pension scheme. You will be given a date by which you will need to back pay your missed contributions.

Prohibited recruitment practice notice

This will be issued to you if when hiring an employee, you infer that an applicant may be more likely to be hired if they agree to opt-out of your workplace pension scheme.

If you are seen to be inducing potential employees to opt out of your pension provision, e.g. by suggesting that you are more likely to recruit someone intending to opt out, then the prohibited recruitment notice will impose a fine of between £1,000 or £5,000 depending on the size of your company and the number of people that you employ.

Fixed Penalty Notices

Fixed Penalty Notices can be issued if you fail to comply with a statutory notice. If you receive a Fixed Penalty Notice, you’ll be required to pay a fixed sum of money (£400). Failure to pay an FPN can result in The Pensions Regulator taking further action which may lead to prosecution.

Escalating Penalty Notice

If you fail to comply with a Statutory Notice, The Pensions Regulator can issue an escalating penalty at an assigned daily rate. This rate can be between £50 - £10,000 per day, depending on the number of people you employ. If you fail to pay an EPN and fix the breach that has resulted in it being issued, The Pensions Regulator may consider further action and prosecution in some circumstances.