Pension Auto-Enrolment Scheme: FAQ

What You Need To Know About Automatic Enrolment Pension

It’s likely you will have heard about the automatic enrolment pension scheme and will want to know how the changes will affect you, so here’s our list of FAQs to ensure you’re fully informed.

Between now and 2018, every employer in the UK will need to have a workplace pension scheme in place and start enrolling workers. Many will be automatically enrolled and others will need to be enrolled if they request it. This scheme is only applicable to Athona Recruitment candidates who are paid through PAYE; if you are paid by other means, including via Limited Company, your Limited Company will be responsible for processing your pension. Athona has chosen to use NEST as our pension provider.

For answers to the following questions please click the links below:

Contribution Schedule

Q: Are there any exclusions to the employer duties?

Q: If an employer uses NEST, are they exempt?

Q. If an employee receives a basic salary plus a discretionary bonus, is only the basic salary used when calculating the employer and employee contributions? How would the bonus be treated in this example? Would a contribution have to be made from it?

Q: Who is treated as the employer for agency staff?

Q: What happens if someone works for more than one employer?

Q: How do the employer duties apply to hourly paid / zero-hour contract / temporary / seasonal / agency workers on short term contracts who are re-employed?

Q: How are hourly paid / zero-hour contract / temporary / seasonal / agency workers assessed for auto enrolment?

Q: Josh has his own limited liability company. He’s the sole director and employee. Does he have to comply with the employer duties? Would this change if he employed someone else?

Q: If an employer uses postponement, how does that affect hourly paid / zero-hour contract / temporary / seasonal / agency workers on short term contracts?

Q. Why would an employer use postponement?

Q. What constitutes ‘Qualifying earnings’?

Q. What constitutes basic pay?

Q: Can a worker opt out after the end of the opt-out period?

Whats Next?

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Contribution Schedule

  Our Employer Contribution Your Contribution Total Contribution into your pension pot
From enrolment date 1% 1% (of which 0.2% is tax relief) 2%
From October 2017 – September 2018 2% 3% (of which 0.6% is tax relief) 5%
From October 2018 onwards 3% 4% (of which 1% is tax relief) 8%

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Employer Duties

Q: Are there any exclusions to the employer duties?

A: Yes, there are exclusions and they are split into two.

People who are treated as workers

The following people are treated as workers but are not covered by the employer duties:

  • those who do not work or ordinarily work in Great Britain
  • those under age 16, and
  • those aged 75 and over.

People who are not treated as workers

The following people are not treated as workers so the employer duties don’t apply to them:

  • the self employed
  • members of the armed forces, and
  • directors of companies unless they have a contract of employment to work for that company and there is someone else employed by the company under a contract of employment.

Different types of workers Eligible

  • aged at least 22 but under state pension age
  • working, or ordinarily work in the UK
  • earning more than £9,440

Eligible job holders are eligible for automatic enrolment into NEST. Non-eligible

  • aged at least 16 but under 75
  • working, or ordinarily work in the UK
  • earning more than £5,668, but not more than £9,440

Or

  • aged at least 16 but under 75
  • working, or ordinarily work in the UK
  • earning more than £9,440

Non-eligible jobholders aren’t eligible for automatic enrolment but can choose to opt in to NEST. If they choose to opt in, they become eligible for employer contributions.

Entitled Workers

  • aged at least 16 but under 75
  • working, or ordinarily work in the UK
  • earning £5,668 or less

Workers without qualifying earnings can ask to become a member of NEST. This is only if they are not already members of a workplace pension scheme. There is no obligation for Athona to make employer contributions.

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Q: If an employer uses NEST, are they exempt?

A: No. All of the employer duties apply regardless of pension scheme type.

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Q. If an employee receives a basic salary plus a discretionary bonus, is only the basic salary used when calculating the employer and employee contributions? How would the bonus be treated in this example? Would a contribution have to be made from it?

A. No. Athona will make contributions from basic annual salary only.

A. There’s no specific exemption from the employer duties for companies that are in financial difficulties so staging will still apply if it’s still to happen and the employer will have to pay at least minimum contributions if they’ve already staged. However in any particular case, TPR should be informed and asked whether any relaxation can apply.

Workers

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Q: Who is treated as the employer for agency staff?

A: For the purposes of the employer duties, it is whoever is responsible for paying the worker or whoever actually pays the worker.

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Q: What happens if someone works for more than one employer?

A: Each employer will be required to fulfil their employer duties separately, ignoring any other employment or earnings that the worker has.

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Q: How do the employer duties apply to hourly paid / zero-hour contract / temporary / seasonal / agency workers on short term contracts who are re-employed?

A: The employer duties apply to these workers each time work is undertaken. For example if a company employs a worker for three months, then employs them again six months later, the employer duties will apply on both occasions.

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Q: How are hourly paid /zero-hour contract / temporary / seasonal /agency workers assessed for auto enrolment?

A: These workers will generally need to be assessed by reference to how the employer pays them and how much they earn. For example if an employer normally pays workers every Friday for work done between Saturday and Thursday, the employer would have to work out how much the workers earned between Saturday and Thursday then determine whether they need to be automatically enrolled or invited to join a pension scheme based on how much they earned.

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Q: Josh has his own limited liability company. He’s the sole director and employee. Does he have to comply with the employer duties? Would this change if he employed someone else?

A: Only directors who have a contract of employment with the company are subject to the employer duties. However while he is sole director and employee the duties don’t apply to him, whether or not he has an employment contract. That changes if another employee or employees is taken on; anyone with a contract of employment (including Josh) is then subject to the employer duties.

Postponement

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Q: If an employer uses postponement, how does that affect hourly paid /zero-hour contract / temporary / seasonal / agency workers on short term contracts?

A: Where the contract of employment is for a period of less than three months and the worker has not joined in the meantime, the employer duties fall away at the end of the contract. Where an employer re-employs a worker, they can operate the waiting period again if they wish and do not have to take into account any previous waiting periods.

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Q. Why would an employer use postponement?

A. Employers have a duty to assess their workforce to identify the types of worker they employ and the duties they’ll have to carry out. For a maximum of three months, postponement gives employers the option to defer:

  • the assessment of their workers or
  • the auto enrolment date for workers who have been assessed.

This allows employers to smooth the administration of their employer duties and align it with their existing business processes. For example they can use postponement to:

  • stagger the assessment of workers at their staging date
  • align the assessment of workers with their payroll processes
  • avoid having to assess seasonal workers or those with one-off spikes in earnings
  • avoid calculating pension contributions on part month earnings.

They can use postponement with their whole workforce, groups of workers or individuals.

Earnings definitions

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Q. What constitutes ‘Qualifying earnings’?

A. ‘Qualifying earnings’ is a reference to earnings of between £5,668 and £41,450 (for 2013/14 tax year) made up of any of the following components of pay that are due to be paid to the worker:

  • salary
  • wages
  • commission
  • bonuses
  • overtime
  • statutory sick pay
  • statutory maternity pay
  • ordinary or additional statutory paternity pay
  • statutory adoption pay.

The assessment of whether a component of pay constitutes an element of qualifying earnings is for the employer to make. In the case of Athona, basic salary is the only element treated as qualifying earnings.

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Q. What constitutes basic pay?

A. Basic pay is defined as the gross earnings of the jobholder, disregarding the gross amount of:

  • any commission, bonuses, overtime or similar payments,
  • any shift premium pay, and
  • any reasonable allowance with respect to:
    1. any duty of the jobholder, such as a duty in connection with the role of fire or bomb warden, that is ancillary to the main duties of the jobholder’s employment
    2. the cost of relocation of the jobholder to a different place of work
    3. in a case not covered by (ii), the purchase, lease or maintenance of a vehicle
    4. in a case not covered by (ii) or (iii), the purchase, lease or maintenance of an item, or
    5. in a case not covered by (ii), (iii) or (iv), the delivery of a service to the jobholder.

    A. As far as The Pensions Regulator (TPR) is concerned you must use the post exchanged salary to calculate whether or not minimum contributions have been met. This is best covered by an example: Pre exchange salary is £50,000. Contribution is 3% employer, 5% employee (including tax relief). The employee wants to use salary exchange to pay their £2,500 contribution. His post exchange salary is therefore £47,500, meaning that the actual payment of £4,000 employer contribution (£1,500 + £2,500) represents 8.42% of the £47,500 salary, not 8%. It therefore needs a bit of maths to calculate in advance what level of sacrifice would result in the minimum contribution being met when measured against the post sacrifice salary. Most providers require the minimum to be based on the pre exchange salary, accepting that this results in the contribution then being more than the minimum required when measured against the post exchange salary. In the above example the employer is paying the minimum and the employee is using salary exchange to pay the employee contribution. In cases where a salary exchange agreement results in the total contribution being effectively funded by the employee, the TPR would object. The employee must always have the option to go for a conventional employer / employee contribution basis and there must be no coercion into using salary exchange.

    Opting out

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    Q: Can a worker opt out after the end of the opt-out period?

    A: Yes. Any worker can stop making contributions to a pension scheme at any time. However, under current rules, they will not receive a refund of the contributions they have made if the pension scheme is a contract-based scheme such as a Group Personal Pension. Where the pension scheme is a trust-based scheme, the worker may be able to get a refund.

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    What’s Next?

    Once we have enrolled you into NEST, you will receive a welcome pack in the post. The pack contains a letter and booklet that provide you with the information you need to use the scheme and to understand how NEST works. Your welcome letter also contains your unique NEST ID and shows you how to activate your online account. Switching it on means you can see what’s in your retirement pot whenever you want and keep your details up to date. You can also let NEST know if you’d like to contribute more, or stop contributing for a while if you need to. Remember, you’ll need to wait until your welcome pack arrives to get your NEST ID.

    For more information about NEST, please visit their website. 

    To find out more about work place pensions, please visit GOV.CO.UK.

    From 1 October 2012, employers no longer have to designate a stakeholder scheme. However, it is just the requirement to designate a scheme that no longer applies. Stakeholder pension schemes can continue to be written and used as auto enrollment schemes. In addition, the FSA’s ‘RU64’ requirement continues to apply. The legislation protects existing stakeholder scheme members. Where someone is already a member of a stakeholder pension scheme before 1 October 2012, the employer must continue to deduct contributions from their pay and pass these to the stakeholder provider unless the member withdraws the request to have payments deducted/paid to the provider.