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Auto Enrolment (AE) – The basics

Automatic Enrolment (AE) FMP Payroll Services

 

 

 

Pension Reform[1] refers to changes brought in by the Pensions Act 2008, followed by the Pensions Act 2011. This legislates that every employer has an obligation to provide a pension scheme which fulfils certain criteria to eligible employees.

The date from which an employer takes on this obligation is known as the staging date[2] and this can be found out from The Pensions Regulator.

Impact

There is no doubt that Pension Reform will introduce extra processing for Payroll and HR Departments. Much of this is fielding opt-ins and opt-outs from employees, but will predominantly be communicating information to employees regarding any postponement or auto-enrolment, along with increased communication with pension providers. There is also the need to assess employees to determine whether they need to be automatically enrolled.

However, specifically with regard to Payrite, the primary impact is for Payrite to be able to operate a capped pension scheme. Other functionality will be introduced into Payrite to assist the extra processing which may fall to the Payroll Department.

Auto Enrolment

Auto Enrolment refers to employer’s legal obligation to automatically enroll an eligible employee into a qualifying pension unless the employee has opted-out. A qualifying pension is one which meets criteria laid out by the Pensions Regulator, including contribution rates and what components of pay are deemed to be pensionable. Employees may opt-out of this process, and the employer may apply a postponement period. The Pension Regulator has provided a set of guidance documents[3] which describe what should be communicated, and when processes need to be performed.

Therefore auto enrolment refers to the employer’s obligation. As now when an employee is enrolled in a pension scheme, there are processes outside Payrite which need to be performed before finally the join date and scheme are added to the employee’s record in Payrite. Payrite can therefore not automatically enroll employees, but functionality will be made available to assist employers in their decision whether employees need to be automatically enrolled.

FMP Payroll Services’ Approach

There has been much speculation on how Pension Reform will work in a wealth of discussion forums. However the Pension Regulator has published a set of guidance documents[3] which provide a great deal of detail and supporting examples. FMP has gone back to these source documents and analysed them to determine how Payrite can provide some additional reporting functionality to assist employers when it comes to them assessing their employees for the wide and varied users of Payrite. Through these guides, the Pension Regulator consistently recommends that employers become familiar with the legislation so that they can fulfil their legal obligation.

Although our HMRC Approved payroll software ‘Payrite’ is very efficient as a payroll solution, it has no accreditation with regard to pensions. Pensions provision is a specialist sector in its own right, and therefore any reporting with respect to Pension Reform can only be for assistance purposes and not advice.

FMP Payroll Services suggest that employers seek independent financial advice if they have not already done so in order to confirm that they will have the correct arrangements in place, and that they are familiar with the process of assessment. FMP Payroll Services have been working closely with a firm of pension advisors, and your account manager can pass on your details to them should you need independent advice.

Payroll Software System Setup

Our payroll software holds Statutory Rates and will additionally hold the rates concerning Pension Reform. These can then be used to set up pensions which satisfy the minimum requirements for a qualifying pension. Each pension will also be able to be flagged that it is a qualifying scheme. Components in our payroll software can currently be flagged as pensionable, and this mechanism will continue to be used in the future.

Additional tabs for Pension Reform will contain such information as the staging date, and how any postponement period should be applied to calculate the deferral date (and whether it should be aligned with the beginning of the pay period to ease processing). There will be the provision to apply these to each employee when they are initially set up. There will also be provision for some reporting options which reflect the way in which assessment is being judged so that Pension Reform reports can be run out of Management Reports without extra user interaction.

Employee Files

Employee base data will contain an additional Pension Reform tab. The tab will contain the employee’s deferral date which will be calculated from the staging date and rules in System Setup, and subsequently from the employee’s join date. Any opt-out date will also be held here, with the pension join date being equivalent to an opt- in date. Other information such as whether the employee is deemed to be a worker, and whether the worker ordinarily works in the UK will also be held in the tab. This information will be used in the assistive management reports where, if the employee has an active pension scheme that has been marked as qualifying, they will be judged to have been opted-in (either by themselves or automatically).

Payrun

The start and stop dates shown when a payrun is opened will be used as the Pay Reference Period. Exception reports will now be able to be included in management reports. There will be a variety of reports, ranging from inclusive of all employees, to just focusing on employees who are not in a qualifying pensions (and therefore maybe need to be automatically enrolled). Our payroll software will be able to use financial figures from base data as well as what has already been input into the payrun so that employers may best judge which employees may need to be enrolled in a qualifying pension scheme.

Reporting and Import/Export

All the new fields which appear against the employee will be made available as payroll software reporting variables. In this way they can then appear on printed reports, be exported, and if appropriate imported.

Useful Links

[1] Pension reform overview

[2] Staging date

[3] Detailed guidance

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