Expert Advice

Pensions auto-enrolment: five errors to avoid

Pensions auto-enrolment: five errors to avoid

According to the latest figures, the number of businesses fined by the Pensions Regulator for auto-enrolment errors rose by 144% in the past year.

The regulator has a number of tools at its disposal to ensure that employers meet their auto-enrolment obligations, including fixed penalty notices of up to £400 or escalating penalty notices for serious or persistent breaches of up to £10,000 a day for larger organisations.

Your duties as an employer Businesses have several obligations under the auto-enrolment legislation. This article focuses on the obligation to enrol ‘eligible jobholders’ into a ‘qualifying scheme’.

Eligible jobholders are aged between 22 and the state pension age, earn above the earnings trigger for auto-enrolment (currently £10,000 a year/£833 a month/£192 a week) and work or ordinarily work in the UK.

A qualifying scheme is a scheme into which a minimum level of contributions must be paid.

Five errors to watch out for There are a number of errors that could result in some uncomfortable discussions with the Pensions Regulator, possible financial penalties or employee relations issues.

Error 1: Failure to correctly identify eligible jobholders on an ongoing basis If an employee’s position changes (e.g. they start to earn more than the earnings trigger in their pay reference period or fall into the qualifying age range), they will need to be auto-enrolled. Employers should check they have formal systems in place to flag when these changes happen and enrol eligible jobholders within the required timeframes.

Error 2: Using the wrong definition of ‘earnings’ in assessing the earnings trigger and or making assumptions about pay

Earnings means: · Salary, wages commission, bonuses and overtime; and · Statutory maternity pay, statutory paternity pay, statutory adoption pay and shared parental pay.

Businesses should have systems that enable them to assess all of an individual’s earnings in one place.

Error 3: Failure to use postponement periods effectively Businesses can defer the assessment of employees for up to three months, for example when taking on temporary staff. Businesses need to supply specific information to employees at the point of postponement and must facilitate any requests to join the scheme during this period.

Error 4: Making incorrect deductions of employee contributions This may occur if there is no system in place to identify individuals who have opted out and the business continues to make deductions. Also, if a business uses a contract based group personal pension plan to provide a qualifying scheme for auto-enrolment but deducts contributions from gross pay. This error could result in an underpayment of tax and incorrect application of tax relief.

Failure to implement the increase in contributions required from 6 April 2019 would result in the scheme ceasing to be a qualifying scheme for employees.

Error 5: Failure to make contributions on time After the first three months of membership, employee contributions to a defined contribution scheme must be paid by the 22nd of the month following the month in which the contribution is deducted from the member’s salary (if paid electronically). Failure to make contributions on time could lead to a civil fine and the Pensions Regulator can direct the employer to pay outstanding contributions with interest. Businesses are well-advised to carefully monitor each member’s situation on an ongoing basis and put adequate processes in place to meet their auto-enrolment obligations.

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