Auto enrolment: am I legally compliant?

Auto enrolment: am I legally compliant?

As an employer, there are a few key things you must do to make sure that your workplace pension scheme is compliant with auto enrolment legislation. Failure to comply can result in some hefty fines from The Pensions Regulator, so it’s important to make sure that you stay on track.

Not sure where to start? We’ve put together this straightforward guide to give you all the information you need to know.

What you need to do

Step one

Set up a workplace pension

You must have a workplace pension scheme in place by your staging date that meets auto enrolment criteria – that is, any members of staff who are at least 22 years old (but under State Pension age), earn more than £10,000 a year and work in the UK.

If you already have a pension scheme in place, this might be suitable for auto enrolment, but it needs to meet the following conditions:

  • It must have a suitable default investment scheme that all employees’ pension contributions will be invested in, unless they decide that 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 for auto enrolment
  • All employees who meet the auto enrolment criteria must be enrolled onto the pension scheme

Step two

Send regulatory communications to your workforce

There are certain regulatory communications that you need to send to your employees to make sure they’re fully informed about auto enrolment. You can send them via letter or email – just make sure that they include the following information:

  • When your workplace pension scheme will be available for them to join
  • The key features of your chosen workplace pension scheme
  • Who will be auto-enrolled, and who can choose to join the pension scheme or to opt-out
  • How they can opt out if they choose to leave the pension scheme

Any compliance software you use may be able to help you with this

Step three

Declare your compliance

You’ll need to let The Pensions Regulator know that you have a compliant workplace pension scheme in place. To do this, you’ll have to complete a declaration of compliance within five months of your staging date. This can be completed by you or on your behalf by a financial adviser, for instance.

If you don’t complete a declaration of compliance, The Pensions Regulator won’t consider your auto enrolment duties to be fulfilled, and you could be fined.

Step four

Perform your auto enrolment duties

Once your workplace pension scheme is up and running, you’ll still have ongoing auto enrolment duties. To stay compliant, you’ll need to:

  • Assess your staff each time they’re paid to see if any additional employees need to be auto-enrolled. This is so that you can make sure all eligible employees are enrolled onto your pension scheme. An employee’s earnings may have increased, for instance, or they’ve had their 22nd birthday since they were last paid meaning they’re now eligible to be auto-enrolled.
  • Establish membership for your eligible jobholders and anyone else who’s asked to join
  • Deal with employees who want to opt in or out of your scheme, or cease active membership
  • Pay contributions as calculated each time you pay your staff
  • Perform re-enrolment duties once every three years so that eligible jobholders who have left your pension scheme or stopped paying pension contributions can be put back onto the scheme.

Top three tips for employers

Don’t miss your staging date

If you’re late for your staging date, you could be fined or prosecuted by The Pensions Regulator. You might also need to back pay not only the employer pension contributions that you 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 to let them know.

Choose the right pension provider

Before you choose your pension provider, it’s worth considering how much time you’ll have to spend on your auto enrolment duties, as well as the level of service and support you’ll need. Different pension providers offer different tools and support, so it pays to choose carefully.

Use postponement if you need to

If you have a valid business reason, you can postpone assessing your staff by up to three months. This can allow you to adjust the timing of the assessment to better suit your business.

What you can’t do

Encourage employees to leave your pension scheme

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

Close your workplace pension scheme

You can’t close your workplace pension scheme without having another workplace pension scheme in place – and the new scheme must be suitable for auto enrolment.

Fines and penalties

How to avoid fines and penalties

In order to avoid penalties or fines, you need to fulfil all of your auto enrolment duties. That means you need to:

  • Set up a workplace pension scheme with a default investment option by your staging date
  • Assess your employees to see who’s eligible to be auto-enrolled
  • Send out regulatory communications to keep your employees informed of your auto enrolment duties
  • Auto-enrol all employees aged 22 and above who meet the minimum earnings threshold
  • Opt out any employees who have chosen not to be part of the pension scheme, and refund any pension contributions that they’ve made. If you choose Aviva as your provider, we’ll accept and process opt-outs on your behalf, and pass back any relevant contributions for you to refund
  • Make pension contributions for all employees who are members of your workplace pension scheme. This means all employees who have been auto-enrolled, and any additional non-eligible jobholders who’ve opted in
  • Ensure that the pension contributions you’re making for your employees meet the required minimum contributions levels, and that these are paid directly into the workplace pension scheme alongside all employee pension contributions
  • Submit a declaration of compliance to The Pensions Regulator
  • Keep the scheme open, keep paying contributions and don’t do anything that leads directly to your employees opting out or ceasing contributions

Fines and penalties you could face

If you’re struggling to put a compliant workplace pension scheme in place, get in touch with The Pensions Regulator as soon as you can to let them know.

If you repeatedly fail to meet your auto enrolment duties, you’ll have to pay escalating fines. If you still fail to comply after receiving multiple fines, you could face legal action and eventually a prison sentence of up to two years.

The Pensions Regulator is committed to working with employers who communicate and cooperate with them. Legal action can be avoided as long as you actively take steps to fulfil your auto enrolment duties, and keep The Pensions Regulator informed along the way.

Types of notice

If you’re breaching, or in danger of breaching your auto enrolment duties, The Pensions Regulator will contact you to ensure that you’re taking steps towards complying. If you fail to provide the information they’ve requested, they may send a formal request for information. If on review of this information, The Pensions Regulator finds that you are in breach of your auto enrolment duties, you will be issued with a statutory notice that corresponds to the breach. If you fail to provide the requested information, or to comply with a statutory notice, you could be issued with a fixed penalty notice or escalating penalty notice. Persistent non-compliance may lead to prosecution. Find out more about each of these notices below, we’ve marked the statutory notices with an asterisk*.

A formal request for information
The first warning you’ll receive if The Pensions Regulator needs more information

A formal request for information is the first warning you’ll receive if The Pensions Regulator needs further information from you, or they believe that you’ve breached your duties.

If you receive a formal request for information, you’ll need to provide any information that The Pensions Regulator has requested, and take steps to ensure you’re compliant with auto enrolment regulations.

A compliance notice*
If you’ve breached your auto enrolment duties

This will outline how The Pensions Regulator thinks you’ve breached your duties, what steps you need to take or stop taking in order to be compliant, and give you a timeframe as to when this needs to be completed by.

A third party compliance notice*
If a third party is liable for you not fulfilling your auto enrolment duties

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 won’t be expected to do anything if you receive this notice, it will make you aware that the third party is at fault, along with the date by which they’ll need to take action.

An improvement notice*
Tells you what to do to get on track with auto enrolment

You’ll only receive this after you’ve been issued with a formal request for information. An improvement notice will inform you of the steps you need to take and the date they need to be done by.

An unpaid contributions notice*
If The Pensions Regulator believes you haven’t paid contributions

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

Prohibited recruitment practice notice*
If you infer that someone is more likely to be hired if they agree to opt out of your pension scheme

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

Fixed Penalty Notices
A fine if you fail to comply with a statutory notice

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 £400. Failure to pay a Fixed Penalty Notice can result in The Pensions Regulator taking further action, which may lead to prosecution.

Escalating Penalty Notice
An escalating penalty if you still fail to comply with a statutory notice

If you fail to comply with a Statutory Notice, The Pensions Regulator can issue an escalating penalty at an assigned day-by-day rate. This rate can be between £50 to £10,000 per day, depending on the number of people you employ. If you fail to pay an Escalating Penalty Notice and don’t fix the breach that has resulted in it being issued, The Pensions Regulator may consider further action and, in some cases, prosecution.

Find out more about auto enrolment

Auto enrolment doesn’t have to be challenging. We’ve got all the information you need to get up and running with your workplace pension scheme.

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