As the auto-enrolment obligations close in for smaller employers many charities will be required to assess what pension arrangements they currently provide for their employees and what they will provide for those employees not already in a pension scheme.
How big is the task?
A report from the Charity Finance Group notes that based on feedback they have received from charities that have already automatically enrolled staff, it seems that some underestimated the scale of the task.
The Pensions Regulator expects that preparation for automatic-enrolment should begin at least 12 months in advance of your staging date in order to give you sufficient time to complete all the tasks required to successfully and properly implement this.
A seven step process has been set out by the Pensions Regulator that should be followed in order to achieve compliance with the regime:
- Know your staging date – the Pensions Regulator will contact you approximately 12 months in advance of your staging date to confirm this if you don’t already know it.
- Assess your workforce – you need to know what category each of your employees falls into so you can establish what you need to provide for them in terms of pension arrangements.
- Review your pensions arrangements – schemes to be used for automatic enrolment need to be of a certain standard so if your current scheme doesn’t meet the standards you will need to put an alternative arrangement in place.
- Communicate the changes to your workers – all employees need to be informed of what steps you are taking in relation to them, the communication you are required to send them will differ depending on the category they fall into.
- Automatically enrol your eligible jobholders – this step must be achieved within the correct timescales.
- Register with the Pensions Regulator and keep records – after your staging date you have to register with the Pensions Regulator and give them details of the scheme(s) that you have provided for your employees. You must continually monitor your employees to check their ongoing eligibility and enrol/re-enrol them as and when required.
- Contribute to your workers’ pensions – you must contribute at least the minimum amount for employees you have automatically enrolled, this amount will increase over the next few years.
As the staging dates for compliance have been broadly dictated by the number of employees in an organisation there is expected to be a peak of activity which will start late in 2014 and continue into 2015 during which time over 25,000 organisations will reach their staging date.
There are reports that this may lead to a capacity crunch with providers and advisers not being able to meet the demand from potential clients. This warning highlights the fact that preparation really is key to achieving compliance. There may be factors outside an employer’s control that impact on preparations including a high demand for advice and support required to meet obligations properly.
What other issues do we need to think about?
As well as deciding on a scheme to use for automatic-enrolment, there are a number of decisions to be made including in relation to contribution levels for example, which will require employers to make a choice as to what they wish to provide for their employees.
The legislation sets out a minimum level of contributions that employers have to make to a scheme in order for this to be compliant, but employers are free to contribute at a higher level than this in respect of their employees if they wish. Employers may wish to look at what contributions they make to any existing scheme for employees. If what they offer for auto-enrolment is inferior, then they may run the risk of a discrimination claim.
Employers should also review and may need to update contracts for new and existing employees depending on what these say about pensions. There are also options for contractually enrolling new employees into a pension scheme rather than enrolling them under legislation.
What about employees on zero hours contracts?
There is potential for there to be significant fluctuations in the earnings of a person engaged on a zero hours contract. The result of this is that they may fall into different categories of worker for auto-enrolment purposes at different times. Employers must continually monitor these employees so that if at any point they receive sufficient earnings to meet the legislative requirements, they can be automatically enrolled.
There are a number of options that can be used to assist with dealing with employees who have fluctuating earnings including applying a 3 month postponement from the date they become eligible for automatic enrolment. There are also options to use contractual enrolment that can be explored.
Can we just use the scheme that we currently use?
Employers should consider whether these are suitable and offer good value for their employees.
Historically many charities and third sector organisations have participated in industry-wide pension schemes that offer pensions to members on a defined benefit basis. These can be structured in such a way that employers can accrue liabilities over and above those which relate to its own members (which are commonly referred to as orphan liabilities).
Schemes of this type can be expensive. There are equally reasons why employers may wish to enrol employees into a scheme of this type that should also be considered. It may be a good time to review participation in any defined benefit schemes to assess the risks in terms of financial liabilities and options you employers have for dealing with these.
This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.