Pensions auto-enrolment: case studies

Matthew Giles of Squire Sanders continues a series of articles on the pensions auto-enrolment provisions with some case studies that look at the staging date arrangements. Employers will be given a staging date from which they must auto-enrol eligible jobholders into a qualifying pension scheme. 

Case study 1

New Fashions plc is a large clothing retailer. At the beginning of March 2012 it had 6,200 employees.  Due to a slump in high street sales, New Fashions recently announced the closure of its less profitable stores and is undergoing a major redundancy exercise as a result. The first dismissals are due to take effect in mid-April 2012. Across the company's stores, 2,400 staff will be made redundant, so that the total workforce will be reduced to 3,800. Jane, New Fashions' HR director, knows that, starting from 1 October 2012, employers will have to enrol eligible workers into a pension scheme and pay contributions for them (see Pensions auto-enrolment: overview in this series for more details). She believes that New Fashions will have to start auto-enrolling its staff from 1 July 2013. Is she correct?

No. Jane is wrong to think that the date from which New Fashions plc will have to auto-enrol staff is 1 July 2013.

The pensions auto-enrolment obligations are to be phased in, starting on 1 October 2012. Employers will be allocated a "staging date", which is the date on which the duties will first apply to them. The staging date is based on the number of workers in the employer's PAYE scheme on 1 April 2012. If the employer has more than one PAYE scheme, the staging date is determined by the largest scheme. The staging date timetable is on the Pensions Regulator's website.

Assuming that New Fashions plc runs a single PAYE scheme for its entire workforce, its staging date is 1 April 2013. This is the staging date for employers with a PAYE scheme size of 6,000 to 9,999 people. A staging date of 1 April 2013 is based on New Fashions plc having 6,200 employees in its PAYE scheme on 1 April 2012. If New Fashions were to complete the redundancy exercise prior to 1 April 2012, its staging date would be 1 July 2013 (which is the date for employers with a PAYE scheme size of 3,000 to 3,999 people), based on the reduced workforce of 3,800 people.

Case study 2

Sportz OK Ltd imports and distributes sport clothing and accessories. It usually employs between 250 and 280 staff but in anticipation of the increased demand for its goods likely to be generated by the 2012 Olympics it has recently recruited extra staff. By the end of March 2012, it will have a headcount of 360. Mark, Sportz OK Ltd's HR manager, needs to know when the company's staging date will be so that he can plan ahead for pensions auto-enrolment.

According to the staging date timetable, and based on Sportz OK Ltd's normal headcount of between 250 and 280 staff, the company's staging date would be 1 February 2014. This is the date for employers with a PAYE scheme size of 250 to 349 people. However, as mentioned above, an employer's staging date is based on the number of workers in its PAYE scheme on 1 April 2012. Therefore, Sportz OK Ltd's staging date will be based on the 360 staff that it will have on that date. This makes the staging date 1 January 2014, which is the date for employers with a PAYE scheme size of 350 to 499 people.

Sportz OK Ltd usually takes on casual staff around the Christmas and new year period to cope with increased seasonal demand. Mark would like to avoid having to enrol casual workers, whom the company employs over the 2014 new year period, into Sportz OK Ltd's pension scheme. Can Sportz OK Ltd do this?

Yes. Employers will be able to postpone an eligible jobholder's (see previous article in this series) enrolment date for a period of up to three months by giving the jobholder notice. This must be in the form of a postponement notice, which must specify the deferral date (which is the final day of the postponement period). The deferral date can be up to three months after the day following:

  • the employer's staging date (for workers already employed on the staging date);
  • the first date of employment (for workers employed after the employer's staging date); or
  • the date that the criteria to be an eligible jobholder are met.

The Pensions Regulator's detailed guide on Postponement (PDF format, 835K) (on its website) includes further information on this aspect of auto-enrolment.

By taking advantage of these postponement provisions, Sportz OK Ltd will be able to avoid having to auto-enrol its casual workers, provided that they no longer work for it after three months of qualifying for auto-enrolment.

Mark should note that, during the deferral period, a worker whose auto-enrolment has been postponed can opt in to an automatic enrolment pension scheme if he or she satisfies the eligible jobholder or non-eligible jobholder criteria. In the event that a casual worker (who also satisfies the definition of "jobholder") who is employed in the 2014 new year period chooses to opt in, Sportz OK Ltd will have to arrange pension scheme membership and make contributions into the scheme in relation to that person.

Workers satisfying the "entitled worker" criteria will be able to join a pension scheme and Sportz OK Ltd will need to arrange membership of a tax-registered scheme (although it will not be required to make contributions).

The Pensions Regulator's detailed guidance on Employer duties and defining the workforce (PDF format, 474K) (on its website) includes information on the different categories of workers.

Case study 3

Manufacture-It Co is a small manufacturing company with 32 employees in its PAYE scheme. Because of its small size, HR matters are handled by the company's managing director, Mary. Mary is concerned about the impact of auto-enrolment on Manufacture-It Co as the company has been struggling during the economic downturn and cannot afford to make pensions contributions. Mary would like to put off auto-enrolment for as long as possible. When is Manufacture-It Co's staging date and will Mary be able to delay it?

The Government recently announced proposed changes to the previously intended staging timetable so that employers with fewer than 250 staff will have more time to prepare. Employers with fewer than 50 employees will not now be staged into the employer duties until June 2015 at the earliest. The Government is due to consult on the proposed changes to the staging timetable. Therefore, the staging dates for employers with fewer than 250 persons are indicative at this stage. Under the current indicative staging dates (on the Pensions Regulator's website), Manufacture-It Co's staging date will be between 1 August 2015 and 1 October 2015 (the date for employers with a PAYE scheme size of between 30 and 49 people). The precise staging date within the date band is subject to the outcome of the Government's consultation.

Mary could postpone the automatic enrolment date for all eligible jobholders in the workforce. However, this will achieve a delay of only up to three months. Alternatively, Mary might decide to delay Manufacture-It Co's staging date by reducing the size of its workforce.

Employers with fewer than 30 workers in a PAYE scheme on 1 April 2012 have an indicative staging date of between 1 January 2016 and 1 April 2017 (other than employers that fall within the "test tranche" with a staging date of between 1 June 2015 and 30 June 2015). Therefore, to fall within this category, Mary will need to reduce Manufacture-It Co's workforce to below 30. She will need to carry out any dismissals to effect this reduction prior to 1 April 2012. She might need to terminate contracts without giving proper notice, given the imminence of this date. Mary would need to weigh up the benefit to Manufacture-It Co of delaying the staging date against the potential negative impact of dismissing employees for this reason. The company may incur a cost in terms of reduced productivity as a result of losing staff. There is likely to be a negative impact on morale and the employer's relations with the remaining staff. The company would also be risking liability for unfair dismissal claims by employees with the requisite period of continuous service, and wrongful dismissal claims by employees to whom it has not given proper notice.

Next week's topic of the week article will be some frequently asked questions on pensions auto-enrolment and will be published on 19 March.

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.