Pensions auto-enrolment: checklist

Matthew Giles of Squire Sanders concludes a series of articles on the pensions auto-enrolment provisions with a checklist to help employers prepare for pensions auto-enrolment. Most employers will have to auto-enrol their workers into a qualifying pension scheme at some stage. 

1.  Assign responsibility for coordinating compliance with the pensions auto-enrolment provisions. 

The pensions auto-enrolment duties will impact on a number of areas of an employer's business, including HR, finance, IT and payroll. Employers need to coordinate their approach to auto-enrolment and should consider appointing a suitable person (or group of people) to take responsibility for this. 

2. Decide whether or not current pension provision is adequate. 

Employers can use their existing pension scheme for auto-enrolment purposes provided that it satisfies the qualifying criteria for an auto-enrolment scheme (see below) and does not contain provisions that:

  • prevent the employer from making the required arrangements to enrol or re-enrol workers (for example by requiring workers to have a period of service before they qualify for scheme membership); or
  • require workers to express a choice in relation to pension membership or to provide information to become a member of the scheme (such as having to complete an application form).

Employers will need to check that the rules of their scheme comply with these requirements before relying on it for auto-enrolment.

3. Establish the staging date.

The staging date is the date on which the auto-enrolment duties first apply to an employer. It is based on the number of workers in the employer's PAYE scheme on 1 April 2012. The auto-enrolment duties are being phased in, with larger employers having an earlier staging date. The first staging date is 1 October 2012 (the date for employers with a PAYE scheme size of 120,000 or more people) with the duty to auto-enrol due to be fully phased in by 1 February 2018. Details of the current staging dates, which are indicative, are on the Pensions Regulator's website.

4. Decide which staff are eligible jobholders, non-eligible jobholders and entitled workers.

Once they have established their staging date, employers need to assess their workforce to establish who is going to be entitled to automatic enrolment. The auto-enrolment provisions apply to workers, which includes agency workers and casual workers. Independent contractors and consultants may also be caught if they are not genuinely self-employed. It will not always be straightforward to determine who qualifies as a "worker". Once an employer has established that it has workers for the purpose of the auto-enrolment provisions, it must identify to which of three categories - eligible jobholder, non-eligible jobholder or entitled worker - each worker belongs.

Eligible jobholders are workers who are eligible for automatic enrolment into a qualifying scheme. Non-eligible workers are jobholders who are not eligible for auto-enrolment but who can choose to opt in to a qualifying scheme, in which case the employer must arrange pension scheme membership and make contributions into the scheme. Entitled workers are workers who are entitled to join a pension scheme that is registered with HM Revenue and Customs but is not necessarily a qualifying scheme under the auto-enrolment provisions. Employers must arrange this but will not be required to make contributions in respect of entitled workers. The category into which a worker falls is determined by his or her age and earnings.

Information on the different categories of worker can be found in the Pensions Regulator's detailed guidance on Employer duties and defining the workforce (PDF format, 474K) (on its website).

5. Choose a qualifying scheme.

Employers need to choose a pension scheme that they can use for automatic enrolment. This could be an existing occupational or personal pension scheme that counts as a qualifying scheme or a new scheme that meets the various criteria. There will be pension schemes available in the marketplace that will be established as qualifying schemes, including the central scheme set up by the Government specifically for automatic enrolment purposes, the National Employment Savings Trust (Nest).

To be a qualifying scheme, a pension scheme must meet minimum quality standards (see What is a "qualifying scheme"? in the previous article in this series for more details). The Pensions Regulator's detailed guidance on Pensions schemes (PDF format, 725.6) (on its website) contains further information on the quality standards that apply to the different types of pension scheme (including defined-contribution, defined-benefit and hybrid schemes).

6. Decide whether or not to postpone auto-enrolment.

Employers are able to postpone an eligible jobholder's automatic enrolment date for up to three months by giving the jobholder prior notice. Postponement provides employers with additional flexibility and could, for example, be used to avoid having to enrol automatically short-term or casual workers, who usually have short periods of service. Further information on postponement, including information on employers' notice requirements, can be found in the Pensions Regulator's detailed guidance on Postponement (PDF format, 835K) (on its website).

7. Register with the Pensions Regulator in good time.

All employers with at least one worker will be required to register online with the Pensions Regulator as soon as they have fulfilled their auto-enrolment duties for the first time. Employers will have to provide the Regulator with certain information, including:

  • details of their business;
  • details of the scheme or schemes that they are using to comply with their employer duties; and
  • the number of jobholders that they have enrolled (if applicable).

Further information on registration can be found on the Pensions Regulator's website.

8. Ensure that HR and payroll processes will facilitate compliance.

Employers should review their HR and payroll systems to ensure that these systems will be able to:

  • identify workers who are eligible for auto-enrolment (and re-enrolment);
  • make deductions of contributions into the pension scheme;
  • provide relevant information to the different categories of worker;
  • process opt-ins;
  • process opt-outs and refund contributions when an employee opts out within one month of entry into the scheme; and
  • keep records (for six years, or four years in relation to opting out).

9. Provide employees with information.

Employers are required to provide their workers with information about their rights in relation to auto-enrolment within prescribed time limits. For example, employers must provide entitled workers with information about their right to join a pension scheme and non-eligible jobholders with information about their right to opt in to an automatic enrolment scheme. There are a number of information requirements relating to eligible jobholders, including a requirement that jobholders being automatically enrolled must be provided with information about what automatic enrolment means for them and their right to opt out. The Pensions Regulator's resource sheet (Information to workers (PDF format, 150K) (on its website)) provides more information on these requirements.

10. Review recruitment procedures.

From July 2012, it will be prohibited for all employers, irrespective of their staging date, to screen job applicants in relation to potential scheme membership. The Pensions Regulator will have the power to issue compliance and penalty notices to employers that breach this requirement.

Recruiting employers will not be able to ask questions or make statements during the course of the recruitment process that indicate that the recruitment of an applicant is dependent on whether or not he or she will opt out of auto-enrolment. Employers should review their recruitment practices to ensure compliance with these requirements. For example, employers should review the information that they send to job applicants and in job offers, and the questions that they ask on application forms and during interviews, to ensure that there is nothing to indicate that appointment is dependent or conditional on potential scheme membership status.

Further information on prohibited recruitment practices is available in the Pensions Regulator's detailed guidance on Safeguarding individuals (PDF format, 283k) (on its website).

11. Train managers in avoiding prohibited treatment.

From July 2012, workers will have a right not to suffer a detriment or to be unfairly dismissed in relation to the auto-enrolment provisions and will be able to bring proceedings in the employment tribunal if these rights are infringed. Employers should provide training to managers with the aim of ensuring that they do not breach these rights by, for example, denying a worker promotion because he or she decides not to opt out of pension scheme membership.

Employers are also under a duty not to offer inducements in relation to automatic enrolment. For the purposes of the automatic enrolment provisions, an "inducement" is an action taken by an employer aimed at inducing a jobholder to opt out of pension scheme membership. An example of an inducement would be an employer telling its jobholders and entitled workers that they will receive a one-off payment or salary increase if they opt out of the pension scheme. Therefore, employers should ensure that managers who have discretion to award payments to employees are aware that they cannot do so on the basis that receipt is conditional on pension scheme non-membership.

The Pensions Regulator's detailed guidance on Safeguarding individuals (PDF format, 283k) (on its website) also includes further information on the detriment, dismissal and inducement provisions.

12. Set up processes to ensure re-enrolment for eligible jobholders.

Eligible jobholders (and non-eligible jobholders who have opted in to the pension scheme) are entitled to opt out of the pension scheme within one month of entry (or one month of the date on which they are provided with certain information about their enrolment). However, employers are required to re-enrol eligible jobholders back into the scheme automatically every three years. Therefore, employers must ensure that they have processes in place to identify and track jobholders who have opted out, and to re-enrol them three years later. Once re-enrolled, jobholders can choose to opt out again.

The next topic of the week article will be the first in a new series on disciplinary suspension and will be published on 10 April.

Matthew Giles (matthew.giles@squiresanders.com) is a partner in the pensions team at Squire Sanders.

Further information on Squire Sanders can be accessed at www.squiresanders.com.