The day when many small and micro employers will reach their staging dates for Pensions Auto Enrolment is getting nearer. Quite a few will hit their staging date later in 2015 but far more staging dates are in 2016. It remains to be seen how many will comply with their obligations. The regulator has recently estimated that around a quarter of employers becoming subject to the new duties in late 2015 and early 2016 could turn to their accountant for help.
What recent developments do accountants need to be aware of, if they are going to play some role assisting their clients?
Approved list of pension providers for small and micro clients
In November 2014, the regulator launched a consultation document entitled 'Helping small and micro employers identify a pension scheme for automatic enrolment'. In the view of the regulator, the risk is not that there is insufficient capacity among pension schemes to serve small and micro employers but that the employers may not know how to find available ones. This could lead to increased non-compliance among employers. So the regulator is proposing to publish a list of pension schemes that are directly available to any employer, irrespective of how many workers they have or how much they pay them.
The regulator hoped to publish the list in 'early 2015' but nothing has appeared as yet. It will be interesting to see if the list contains any pension provider other than NEST.
Revised thresholds for worker's eligibility status for auto enrolment and the calculation of minimum pension contributions
A review takes place every year by the government of the various thresholds that are used to determine the status of workers and to calculate contributions. The thresholds have historically tied in with income tax and NIC thresholds. So, in 2014/15 the earnings trigger was £10,000 which equals the income tax personal allowance. The earnings trigger is the prescribed level of earnings required for an individual to be automatically enrolled into their employer's workplace pension scheme.
The lower and higher thresholds which are used calculate the minimum contributions on earnings between the thresholds tied in with the NI Lower and Upper Earnings Limits.
The lower and higher thresholds maintain their relationship to the NI thresholds for 2015/16. However the earnings trigger remains at £10,000 for 2015/16 and is not increased to the income tax personal allowance of £10,600. The government considered that the significant rise in personal allowances in recent years does mean that people who should be saving for retirement may lose out.
Some simplification is on the way
In December 2014 the Department of Work and Pensions published a consultation to further simplify the auto enrolment process and reduce burdens on employers. These proposals are provided for The Pensions Act 2014 and we are waiting for the result of the consultation. The main simplification of relevance to the small and micro employer concerns the provision of information to workers.
The current legislation means there are five different pieces of information that an employer must give to different types of employee about what is happening to them under auto enrolment. The requirements can require more than one communication or notice to be given to the same employee in quick succession. There are also the postponement notices - the postponement notice has four sub-types for the employer to choose between, which vary the requirements according to the category of worker.
The consultation may result in communications being reduced to three pieces of information:
(i) one to all employees at staging date or individually when a new employee joins;
(ii) one to all employees if the employer decides to postpone; and
(iii) one to each employee when they are automatically enrolled, re-enrolled or enrolled following opting in or joining.
All this is good news but the practical issue remains - what does the employer do when an employee, having received one of these letters, asks 'what does this mean?'
Employers fined for failing to comply with pensions duties
No surprise there's been some fines meted out by the regulator. Approximately 30,000 medium-sized employers, (those with approximately 62 - 149 workers), who staged in April-July had reached their deadline to complete their declaration of compliance by the start of December 2014. A total of 166 Fixed Penalty Notices (£400 fines) were issued in the last three months of the year and 1,139 compliance notices were issued. A significant number of the notices issued were to employers who had missed their deadline to submit their declaration.
These facts prompted the regulator's Director of automatic enrolment to state:
'My message to all employers is that failing to declare within five months of your staging date means you risk being fined, which is why we recommend you start your automatic enrolment planning and preparation 12 months before staging.'
Regulator to write to small and micro clients
The regulator already writes to employers 12 months ahead of their staging date as part of its ongoing 'countdown' of communications to employers approaching automatic enrolment. Research from the regulator has shown that significant numbers of small and micro employers still do not know their staging dates.
So, the regulator has decided to write to more than 1.5 million addresses across the UK from the end of January with the aim of ensuring that by the summer all employers know their staging date.
The question is - will they read it? Or will they wait for their trusted business adviser (that's you!) to tell them about their staging date and the essential information they need to know about auto enrolment.
Last year, many of you did buy our auto enrolment guide, letters and Cost Report to help you communicate with your clients. Updates with 2015/16 rates are now available; please email email@example.com for more information on the updates.
Many of you with primarily small and micro employers may not have sent anything yet to your clients. Now might be an appropriate time to do so; you can find the details of our solutions here.