At Cheviot, we are committed to supporting employers through the auto enrolment process and enabling them to participate in a workplace pension which is easy to administer and understand.
If employers currently offer a flexible benefits package including pensions, life cover, healthcare etc, care needs to be taken that any options to exchange pension contributions for other benefits are not perceived as an inducement to opt out of the workplace pension. The new rules for pension saving are not intended to restrict flexible benefit packages and individuals must be able to retain the right to choose how their benefits are made up. We recommend you take separate advice on this but suggest that the minimum pension contributions under any flexible benefits comply with the auto enrolment requirements.
Some employees may have enhanced or fixed protection of their benefits under existing arrangements. These employees will still have to be auto enrolled into a workplace pension. However to ensure they do not lose the protections they already have, they need to opt out within one month of being auto enrolled.
Cheviot will help employers ask the right questions to identify these employees.
Salary Sacrifice is a contractual arrangement between the employee and employer where the employee’s pay is reduced before he or she receives it and the corresponding amount is paid into the pension scheme. Both the employee and employer save tax and national insurance on the amount sacrificed. The assessment will be based on pre sacrifice qualifying earnings. The contributions are based on post sacrifice qualifying earnings.
Whilst Salary Sacrifice can run alongside auto enrolment, employers must ensure it is not a condition of pension scheme membership. Eligible Jobholders must be auto enrolled into a workplace pension even if they do not want to use Salary Sacrifice.
If employers already offer pension contributions as part of employees’ contract of employment, then this is subject to the usual rules about changing employment contracts unless the current level of contributions is less than the minimum required under auto enrolment, in which case, the requirements will override the existing provisions.
Employers will need to ensure that payroll systems hold the correct information to facilitate the auto enrolment of employees. Employers may need to check all the data held to ensure that it is accurate as, once auto enrolment starts, it is the employer which is responsible for the data provided to the workplace pension.
If the data is accurate, employers will need to ensure that the systems are in place to update it quickly for new employees or where a new employee is promoted to ensure contributions are accurately calculated.
Employees cannot be required to complete an application form to join the workplace pension. The Employer must therefore provide the required information to the administrators.
Cheviot will be able to accept this information in a variety of formats and will discuss with each employer what works best with their internal systems.
Employers will need to keep records to prove compliance with the new requirements. The records can be either electronic or paper based legible systems. Records need to be kept for six years or four years in the case of opt outs. Records are needed for the three categories of workers (ie eligible and non-eligible Jobholders and entitled workers) together with names, National Insurance numbers, and joining notices.
Employees will be able to opt out of the arrangement but will have to take action to do so. They will need to complete an opt out notice and return it to their employer. To ensure that employers do not induce employees to opt out, the notice has to be provided to members directly from the workplace pension.
Members have one month to complete a valid opt out notice.
The one month opt out period starts from the later of
If an employee submits a valid opt out notice within the one month period, they will be entitled to a refund of their contributions. They can still opt out later, but their contributions will remain invested and the scheme rules will apply.
To deal with the uncertainty of the first month, the employer does not have to pass over any contributions to the scheme until the end of the third month. This will enable employers to return any contributions for members who opt out easily.
If a member opts out, the employer must keep a record and automatically re-enrol them after a period of three years.
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