Ten million people have joined workplace pension schemes since auto enrolment began in 2012. The scheme faced its first major test in April, when the total minimum pension contributions increased from 2% to 5%.
Under automatic enrolment, minimum pension contributions are required to increase over time. This happens on set dates - the 6th of April 2018 and the 6th of April 2019 - and is a key feature of automatic enrolment. By law, a total minimum amount of contributions must be paid into a pension scheme. The employer must make at least the minimum employer contribution towards this amount and employees must make up the difference. It is an employer’s responsibility to make sure these increases are implemented.
In 2019, the minimum contribution levels will rise again on the 6th of April, with the employer paying a minimum of 3% of qualifying earnings towards the pension. Staff members will have to make up whatever shortfall remains of the new total minimum contribution up to 8%, including the employer's contribution. These increases should be seamlessly handled by payroll software.
|Date effective||Employer minimum
|Staff contribution||Total contribution|
|Before 6th April 2018||1%||1%||2%|
|6th April 2018 to 5th April 2019||2%||3%||5%|
|6th April 2019 onwards||3%||5%||8%|
If a member does not wish to pay the increased contributions due, they can choose to opt-out of the pension scheme, or they may be allowed to remain at the lower contribution rate after the increase. This will mean they continue to be a member of the scheme, but as contributions are below the minimum level required by law, the scheme will not be a qualifying auto enrolment pension scheme.
Since April 2018, many pension providers have said that they have seen very little impact on opt-out rates as a result of the higher contributions. In the two months after the April 2018 increase, the opt-out rate rose by approx. 0.2% to 8.2%. In a survey of nearly 350 employers, 88% said that the increase in minimum auto enrolment contribution rates in April 2018 had not reduced scheme participation. Prior to the increases, there were fears of a bigger spike, with the Department for Work and Pensions (DWP) projecting opt-out rates as high as 28%.
There was also a very low percentage of workers who opted to reduce their contribution rate to the previous 1% contribution level. One employer with 30,000 workers enrolled had just 40 employees choosing to remain at the lower amounts.
Steve Webb from Royal London said: “We have seen very little impact of April’s rise in contributions. The rise coincided with the annual boost to tax thresholds, some annual pay rises and an increase in the living wage, all of which will have cushioned the rise in contributions. Inertia also remains a powerful force and will continue to be so as long as contributions remain at relatively modest levels.”
Employers are predicting that opt-out rates will remain low as auto enrolment contribution rates are set for another increase this year.
Click here for more information about phasing / increases to minimum contributions.
By law, all UK employers are required to complete a number of mandatory duties to comply with automatic enrolment. Some of these duties include enrolling staff who meet certain eligibility criteria into a workplace pension scheme, issuing letters to all employees and paying minimum employer pension contributions.
If an employer fails to comply with auto enrolment, the Pensions Regulator will take enforcement action. Although the rollout of auto enrolment began in 2012, it is now that the true consequences of non-compliance are coming to light.
Earlier this year, bus company Stotts Tours (Oldham) appeared at Brighton Magistrates' Court for sentencing, after pleading guilty to eight counts of wilfully failing to comply with the law on workplace pensions - the first such prosecution by The Pensions Regulator.
Stotts Tours (Oldham) should have put its staff into a workplace pension and begun paying pension contributions from June 2015. With 36 employees that should have been enrolled, the bus company and its Managing Director are now left with a bill of more than £60,000 after they admitted trying to deliberately avoid giving their staff workplace pensions.
District Judge Teresa Szagun said: "Initially Mr Stott's attitude was to bury his head in the sand. This later left him in a position where he was out of his depth."
The bus company was ordered to pay a £27,000 fine, £7,400 costs and a £120 victim surcharge. This is on top of the £14,400 in civil fines that the employer already owes for failing to comply with the law on automatic enrolment and an estimated £10,000 in backdated pension contributions for employees. Managing Director Alan Stott was also ordered to pay a £4,455 fine and a £120 victim surcharge.
Darren Ryder, TPR's Director of Automatic Enrolment, said: "Compliance with automatic enrolment remains very high and so it's extremely disappointing that a tiny minority of employers continue to flout the law by denying their staff the pensions they are entitled to.”
“This case shows the cost to employers that failing to comply with automatic enrolment can bring - a bill of tens of thousands of pounds, a criminal conviction and a damaged reputation."
This year we will see an increasing number of key pension providers developing an API option that will allow payroll software to fully integrate with them. Certain pension providers such as NEST, have made real head way in terms of automation. Direct API integration allows payroll software and the pension scheme to communicate or talk directly to each other, which is a similar concept to RTI.
API integration means that users no longer need to export and save the data file to their PC and then log into the pension provider web portal to upload the data. Instead, data can be sent directly to the pension provider at the click of a button from within the payroll software.
This method of sending information between two systems will be of particular interest to payroll bureaus who could have a large number of payroll clients. The integration will enable bureaus to reduce errors and minimise the time spent submitting their clients’ files to the pension provider each pay period.
NEST have two other APIs to validate groups and payment sources, and to approve contribution payments from within the software. This integration further streamlines the setup and ongoing tasks involved when using NEST as your pension provider. Again any good payroll software will offer all three of these NEST API’s.
BrightPay offers csv support for 18 pension providers. We are now proud to say we offer API integration with NEST, Smart Pension and we’re the very first payroll provider to offer API integration with Aviva.
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Ireland looks to follow in the footsteps of the UK and introduce a workplace pension reform by 2021. The Irish prime minister, Leo Varadkar announced that Ireland is planning an auto enrolment pension system that would see all employees enrolled into a workplace pension scheme by their employers. While details are still being finalised it is likely that Ireland will replicate many of the processes that were rolled out by the UK.
Similar to the UK, Irish employees are not saving enough for their retirement. To combat this, the Irish government wants employers and employees to contribute towards a workplace pension scheme to prepare for retirement.
“This issue has been long-fingered for too long, and now that the economy is recovering strongly we must act decisively, and we will publish a five-year roadmap for pension reform before the end of the year. This will include the introduction of an auto-enrolment pension scheme for private sector workers, two-thirds of whom currently have no occupational pension to supplement their State pension.”
Certain Irish employer groups are opposing the move for auto enrolment citing the administrative and financial burdens it will create. The concept is being driven by the fact that the Irish government will not be able to support the growing aging Irish population into retirement. Auto enrolment is an effective retirement strategy that will increase employees savings towards a more financially secure retirement.
The auto enrolment concept has been hugely successful and proved in Australia, New Zealand, and the UK. The aim of a pension reform will allow every employee access to a workplace pension scheme that is provided by their employer by law.
Written by Karen Bennett | BrightPay Payroll Software
Time-consuming pension file CSV uploads can now become a thing of the past as BrightPay have teamed up with Aviva to bring both employers and payroll bureaus a one-click pension submission. Using Aviva’s API technology, files can be directly sent from one system to another electronically. An API facility is a similar concept to RTI where one system (i.e. payroll software) can instantly communicate with another system (i.e. pension provider.
If Aviva is your chosen workplace pension scheme you can simply send your pension contributions to Aviva in an instant. There is no need to leave the BrightPay application to submit your pension contributions as the Aviva API accesses the pension file that BrightPay has created. This pension file can then be sent through to the Aviva portal with just a few clicks on BrightPay.
Whether you process payroll and automatic enrolment (AE) for your small business or for your payroll bureau’s multiple clients, you can easily comply with your legal duties without having to tirelessly toggle between tabs on your PC.
BrightPay are pleased to be the first payroll software to offer this API integration with Aviva. BrightPay and Aviva customers are saving invaluable time each pay period. If you’d like to see how BrightPay can streamline other tedious automatic enrolment tasks you can book an online demo today. Find out more on our Aviva API webpage.
Written by Cailín Reilly.
The list of Recognised Overseas Pension Schemes (ROPS) notifications has been updated. 17 schemes have been added and 1 scheme has been removed. This is a list of workplace pension schemes that have told HMRC they meet conditions to be a ROPS and have been asked to be included on the list.
The ROPS notifications list is updated and published on the 1st and 15th day of each month. The list will be published on the next working day if this date falls on a weekend or UK public holiday. From time to time, the list is updated at short notice to temporarily remove schemes while reviews are carried out. For example, this could be when there is suspected fraudulent activity.
The requirements for ROPS changes from 6th April 2017.
You need to meet the new requirements on or after the date you transfer from one scheme to another. HMRC can’t guarantee these are ROPS or that any transfers to them will be free of UK tax. The responsibility lies with you to find out if you have to pay tax on any transfer of pension savings.
HMRC will usually pursue any UK tax charges (and interest for late payment) arising from transfers to overseas entities that don’t meet the ROPS requirements even when they appear on this list. This includes where the ROPS requirements have changed and where taxpayers are overseas. HMRC will also charge penalties in appropriate cases.
As an employer, your declaration of compliance is a legal duty. If you do not complete it within 5 months of commencing your Automatic Enrolment (AE) duties, then you have not completed your legal requirements of Automatic Enrolment and may face fines. Even if an employer did not enrol any member of staff, a declaration of compliance must be completed.An employer can process their own declaration or authorise an agent to complete this on their behalf. The declaration is completed via The Pensions Regulator’s website. You can start the declaration now by clicking here.
Don’t delay or you could face prosecution – it is a criminal offence if an employer fails to put their employees into a pension scheme and/or provide false information in a declaration of compliance. The maximum punishment can be 2 years in prison if The Pensions Regulator proceeds with prosecution. The Pension Regulator’s checklist provides details of all the information you need when submitting your client’s or your own AE declaration.
You need your letter code and PAYE reference to access the online service. The letter code is unique to every employer and a 10-digit reference beginning with ‘1’. It is on all correspondence an employer receives from The Pension Regulator, you can contact firstname.lastname@example.org if you do not know it or have never received it. To contact customer service you must provide:
An employer’s PAYE reference can be found on correspondence from HMRC when first registered as an employer or from their payroll software.
The Pensions Regulator (TPR) is ensuring that all employers fulfil their duties required by the Pensions Act 2008. It is essential that all employers understand that even if they employ only one person they have certain legal duties for Automatic Enrolment. And if they choose to employ a new member of staff after 1st October, 2017 those duties apply from the day the new employee starts.
Remember, Automatic Enrolment is a continuous duty for all employers, and does not end after the staging date or duties start date (if you don’t have a staging date).
Avoid penalties by understanding how to meet your duties:
All responsibility ultimately lies with employers.
The Pensions Regulator (TPR) is ensuring that all employers fulfil their auto enrolment duties required by the Pensions Act 2008. It is essential that all employers understand that if they employ just one person, they have certain legal duties for automatic enrolment. After the 1st October 2017, new employers who employ their first member of staff will have to comply with auto enrolment from the day the new employee starts.
A pension scam – when someone tries to con you out of your pension money – will often start by someone contacting you unexpectedly with one of many pension scenarios. If you find yourself in one of these scenarios make sure to act fast to prevent becoming a victim of a pension scam.
1. You have received a cold call offering a free pension review.
Hang up! Scammers will often impersonate government-backed organisations in order to swindle you out of your savings. These organisations will never offer you a free pension review.
2. You have been offered advice about your pension.
Pension scammers can act as Financial Advisors. Be sure to check the FCA list of approved advisors. If the advisor is not on that list then they are not regulated and you are not protected.
3. You have been told you need to act fast to secure a ‘limited time offer’.
Don’t be rushed into making a decision about your pension. Scammers will try to rush you, offering ‘discounts’ that are likely to be time sensitive. Take the time you need to ensure the legitimacy of the deal. This may mean ‘missing out’ but could be the difference between keeping your pension fund secure and losing all your savings.
4. Your friend has recommended an investment to you.
You might trust that your friend is financially wise but this confidence in your friend can translate to you being scammed. Always do your research on a company. Don’t take someone else's word!
5. You have been offered an unbelievable deal.
Be cautious of unregulated investments that offer exclusive or exotic sounding investments, often described as ‘overseas’. Many of these investments claim ‘guaranteed returns’. If you think something sounds too good to be true - it probably is.
Millions of men and women may have to wait a year longer to receive their state pension after the Government have announced plans to raise the retirement age to 68 earlier than planned.
Under current legislation, the State Pension age increase from 67 to 68 is to be phased in between the years 2044 and 2046. The Government, however, now plan to implement this increase seven years earlier. Should this proposed change go ahead, this means that the State Pension age will thus increase to 68 between 2037 and 2039 instead.
Who will be affected?
Based on the new proposal, men and women born between April 6 1970 and April 5 1978 will be affected. This equates to approximately six million people, who are currently aged between 39 and 47.
No one born before April 5, 1970 will be affected by the change. Currently, those born since April 6 1978 already face a state pension age of 68.
Will these changes go ahead?
At present, this is simply a Government proposal and will therefore need to be approved by Parliament. In response to the new plans, Secretary of State for Work and Pensions, David Gauke said:
“Combined with our pension reforms that are helping more people than ever save into a private pension and reducing pensioner poverty to a near record low, these changes will give people the certainty they need to plan ahead for retirement”.
Auto enrolment has helped more than 8 million people to save into a workplace pension, in order to boost their retirement pot.