Pensions - auto enrolment
Providing a pension for your personal assistant (PA)
In our section on payslips (and deductions commonly seen on them) we talk a little bit about pensions and auto-enrolment. We understand this is one aspect of being an employer that causes care and support employers some worry, so here we go into more detail. While your 'staging date' (i.e. the date that the new auto-enrolment duties first apply to you) may be some way off, there are a number of tasks you will need to do before your staging date even arrives, which can take some time to organise. We would therefore recommend that you familiarise yourself with what is expected of you under auto enrolment by reading this section now.
What is auto enrolment?
Are all employers affected by auto enrolment?
What criteria must my PA meet to be auto enrolled?
What if my PA is self-employed?
When does auto enrolment begin?
What should I do to get ready for my staging date?
How much will I have to pay?
Auto enrolment software
Auto enrolment and salary sacrifice
What if my PA has questions about auto enrolment?
Where can I get further information?
As people live longer, the Government believes too many people are not preparing for what could be a long retirement. Automatic enrolment means staff, who are not already in a workplace pension scheme, are put into one by their employer as a matter of course. If they do not want to be in the pension scheme, they must actively choose to opt out (although they may ask to re-join the scheme at a later date).
Some of the keys things you will have to do as an employer under auto enrolment include:-
- Know your ‘staging date’
- Put in place a pension scheme
- Check which workers are affected
- Work out how much you will be contributing
- Consider your payroll software options
We talk about these things in more detail below.
Automatic enrolment affects all employers with staff in the UK. There are no exceptions.
This means that as a care and support employer, you will have to comply with the rules and regulations – and from your staging date, enrol your PA into a pension scheme if they meet the criteria.
The rules say you must automatically enrol all staff who are:
- aged 22 to state pension age, and
- working in the UK – under a contract of employment (or a contract to perform work or services personally and not as part of their own business – see later), and
- earning over £10,000 a year (the limit will be frozen at £10,000 for the foreseeable future).
If your PA does not initially meet the eligibility criteria to be automatically enrolled, they might do at some stage in the future, for example if their earnings change. You must therefore monitor them and if they become eligible for automatic enrolment at a later date, enrol them at that point.
Your PA can ask to join a pension scheme, even if they are not required to be automatically enrolled, and you may have to pay into the scheme on their behalf:
- Non-eligible jobholders – for example those aged 22 to state pension age, earning from £5,824 (in 2016/17) to £10,000 or those aged 16-21. These workers are entitled to opt in, with an employer contribution.
- Entitled workers – for example those earning under £5,824 (in 2016/17). These workers are entitled to join a scheme but are not entitled to an employer contribution if they do so.
You can find more information about these categories of workers in the Pension Advisory Service website.
Please note that staff whose automatic enrolment has been postponed by their employer can also choose to opt in to the pension scheme during the postponement period. You can read about postponement below.
Even if you do not have any workers to automatically enrol in to a pension, you must tell the Pensions Regulator by completing and submitting a ‘declaration of compliance’ and must also write to workers individually. More information and template letters that you can use are available on The Pension Regulator’s website.
Clearly, individuals with a contract of employment will be covered by automatic enrolment. But what if your PA does not have a contract of employment?
If they provide services to you under a different arrangement but undertake to perform those services personally for you (i.e. you would not be happy for them to send someone else in their place if they were not able to turn up themselves), then they will likely be considered a ‘worker’ for employment law purposes and will be covered by auto enrolment, even if they are not your actual employee. You can find more detail on identifying whether a person is a ‘worker’ in the Pensions Regulator guidance here.
You do not have to worry about auto-enrolment at all if your PA is considered self-employed for employment law purposes, rather than a ‘worker’, for example, they can decide what work they do and when, where or how to do it, can hire someone else to do the work or work for more than one client.
The date your auto enrolment duties come into force is known as your ‘staging date'.
At the moment, small employers in existence before April 2012 will typically have staging dates between 1 June 2015 and 1 April 2017.
New employers starting from 1 April 2012 will have staging dates to join from 1 May 2017 onwards.
The Pensions Regulator has a tool to help you work out your exact staging date using your PAYE reference. An example of a PAYE reference is 913 / WZ5121A – this will have been issued to you when you registered as an employer with HMRC.
You can bring your staging date forward but you cannot make it later (unless you choose to postpone it – see here for further information).
You may be interested to know that figures from the Pensions Regulator show that 90% of the first small employers required to put their staff into a workplace pension have now complied with the law. They say that this shows that a workplace pension can be set up by all, including the very smallest employers. Furthermore, where they did have to issue fines to employers for not meeting their legal duties it was generally as a result of employers underestimating the time it might take them to prepare, and leaving it too late.
The Pensions Regulator has a tool to help you plan the action you need to take.
Whilst your staging date may be some way off, it is best to start looking into what you need to do now, so that you are ready for the introduction of auto enrolment. Ideally, you should allow several months or more to get ready for auto enrolment.
One of the main things you will need to do is to choose a pension scheme to use. You will need to choose a scheme that meets the requirements of automatic enrolment. You can find some advice on finding a pension scheme provider here.
To make it easier for employers to comply with the requirements the Government has set up a simple, low-cost ‘default’ scheme called the National Employment Savings Trusts (NEST) which employers may use if they wish.
When considering whether NEST is the appropriate scheme to enrol your staff in you may wish to consider some of the points set out in this Pensions Regulator booklet: Selecting a good quality pension scheme for automatic enrolment. For example, if your PA is Muslim, you may wish to ensure that the pension scheme you select has a Sharia compliant investment option within the overall scheme that they can choose to put their funds in if they so wish.
You should be aware that you also have to communicate with your workforce about auto-enrolment. There are strict obligations about what you have to tell your workers and when. For example it is a legal requirement to tell them how auto-enrolment affects them, their rights and whether you are postponing the staging date. The Pensions Regulator has prepared templates to help you comply. Some payroll software packages will help you handle the communications.
Once your staging date has passed, you must complete the registration requirements, i.e. tell the Pensions Regulator that you have complied with auto-enrolment. You need to submit the declaration on the Pensions Regulator’s website within five months of your staging date. Failure to comply with your employer duties could mean that you incur fines.
You should also remember that auto enrolment is not a one-off project – you will have ongoing obligations. For example, when new workers join, you must auto-enrol them if they meet the age and income thresholds and every three years, you have to automatically re-enrol employees who have opted out. Again, some payroll software packages will help you carry out these types of tasks.
Finally, employers have a legal requirement to ensure that certain records are kept on both staff and on the pension scheme, for example the names and addresses of staff they've enrolled, records of when contributions were paid into a pension scheme and staff opt-in and opt out notices. These records must usually be kept for 6 years and can be held electronically or in paper format. You will need to ensure you have a good procedure for keeping these records and the Pensions Regulator could ask for them at any time. You can find out more about record keeping on our website.
You will have to pay the minimum legally required level of contributions into the pension scheme you select. The amount will be based on a percentage of your worker’s earnings. At the moment, the employer contribution is 1% but it is set to rise to 3% by April 2019 – the level of contributions will be raised gradually to help employers get used to the extra cost, as follows:
|Date||Employer minimum contributions||
Total minimum contribution
(i.e. employer and employee)
|Up to April 2018||1%||2%|
|April 2018 to March 2019||2%||5%|
|From April 2019||3%||8%|
You can find out more about the minimum contributions here. You can decide to pay more than the minimum and many employers already do.
If you pay for your PA using money from the Government, for example a direct payment from your local authority, it is possible that they will increase the level of funding to take account of the cost of auto-enrolment however this is something you would need to raise with them.
Your employee will also probably have to contribute to the pension, as per the table above. If they do, the Government may also pay into the pension pot, in the form of tax relief. Some pension providers (including NEST) use a relief at source (RAS) arrangement, where they claim 20p tax relief back from HM Revenue and Customs (HMRC) for every 80p of the employee’s contribution received – no matter what the level of the employee’s earnings. Some pension providers do not use this method, and use a different approach to tax relief (net pay arrangements), meaning employees do not get any tax relief if their earnings are less than £11,000 (in 2016/17). This may be a relevant consideration in terms of choosing a pension provider if you have a lower-earning employee.
You should note that your employer contributions will not be a taxable benefit for the employee no matter which tax relief arrangement the pension scheme uses.
If you file your payroll information online, you should check to see if your payroll software is designed to carry out any auto enrolment tasks to help you meet your auto enrolment duties. If it does not then you may want to consider updating or changing it.
Auto enrolment functionality has been integrated into most of the HMRC approved payroll software packages (including some of the free software) and can make assessing workers, issuing communications, making contributions, viewing reports and submitting information to the pension provider much simpler and easier for you.
If you are a paper filer or use HMRC's Basic PAYE Tools (which is not designed to carry out any auto enrolment tasks), you will need your own process to assess their staff and calculate contributions. The Pensions Regulator have designed a ‘basic assessment tool’ (in the form of a spreadsheet) to help you with this, however, as its name suggests, it is very basic. Additionally, you will still need to do things like find out from your pension provider how to provide this information to them and feed some data from the spreadsheet on employee contributions back into your ordinary payroll calculations (in order that tax relief can be given, as necessary). For more information, go to the Pensions Regulator website.
It is possible for an employer to legitimately postpone automatically enrolling an employee for up to 3 months. Postponement can be used:
- at the employer’s staging date for any workers employed on their staging date
- from the date an employee first becomes an eligible jobholder, if this is after the staging date
- on the first day of employment for any worker starting employment after the staging date.
Postponement means that if you expect your PA to be with you for a very short period only for example, you might not have to auto-enrol them, even if they are otherwise eligible.
You can find out more about postponement on the Pensions Regulator website.
Whilst an employee’s pension contributions attract tax relief, they do not ordinarily attract National Insurance contribution (NIC) relief. However, if an employer makes a contribution to an employee’s pension scheme, then there are no tax or NICs to pay. Because of this, a salary sacrifice arrangement is commonly used when it comes to putting money into a pension.
A salary sacrifice happens when an employee gives up the right to part of the cash remuneration due under his or her contract of employment. The sacrifice is achieved by varying the employee's terms and conditions of employment relating to remuneration. For example, an employee's current contract provides for cash remuneration of £15,000 a year with no benefits. If the employee puts £500 of this into a pension, then tax will only be due on £14,500 but NIC will still be due on the £15,000. Under salary sacrifice, the employee agrees with the employer that for the future the employee will be paid cash remuneration of £14,500 year and that the employer will put the £500 into a pension, tax and NIC free, for the employee. This means that the employee’s tax and NIC will only be charged on £14,500. The employer does not have to pay the 13.8% employers NIC on the £500 cash given up either.
Some employers are planning to enrol employees into a workplace pension scheme in combination with salary sacrifice arrangements. Essentially the employee would ‘give up’ their right to some salary and the employer would make all of the required pension contributions in return – making sure that the minimum total contribution is achieved – see above for more on this.
This type of arrangement can be quite complicated to set up (so you will probably need some professional advice) and may not be suitable in all cases (for example, those on the minimum wage cannot salary sacrifice), however, when appropriate, it can help mitigate some of the extra costs that employers will face as a consequence of auto-enrolment. A starting point to find out more is to look at the information accessed through these links:
Your PA may come to you for some guidance on auto enrolment – for example, should they stay in or opt out?
For many workers, saving into a pension scheme is a good idea but things may not be so clear cut if your PA is on a limited budget and/or if they do not get tax relief on their contribution, for example.
The Money Advice Service has some information for workers which you could direct your PA to.
The Pensions Regulator also has produced some information aimed at workers which should help answer any questions your PA may have.
The Pensions Advisory Service has a useful auto enrolment guide, including some frequently asked questions, on their website.
You should note that any decision to opt out must be your employees alone – it is against the law to try and persuade or compel your employee to opt out of auto enrolment.
For employers new to this, there is also some basic guidance on the GOV.UK website.
Disability Rights UK have a factsheet on auto-enrolment: Individual Employers and Workplace Pension Schemes for Personal Assistants.
The Pensions Regulator has launched a new online step by step guide to auto enrolment. The guide is designed to meet the needs of employers who may not have pensions experience including those with just one or two staff. It uses everyday language, is interactive and contains videos and infographics so that employers can easily understand what they will need to do.
They also have specific help about automatic enrolment for people who employ their own care and support which includes the following resources:
- The essential guide for people who employ their own care and support (PDF, 96kb, 6 pages)
- Questions and answers for people who employ carers