Pension Auto-Enrolment

Automatic Enrolment – What is it?

The government has introduced a new law to make it easier for people to save for their retirement. It requires all employers to enrol their workers into a qualifying workplace scheme if they are not already in one. At present, many workers fail to take up valuable pension benefits because they do not make an application to join their employer's scheme. Automatic enrolment is meant to overcome this.

Does this affect me?

Employers have to automatically enrol workers who:

Are not already in a qualifying workplace pension scheme;

Are at least 22 years old;

Are below state pension age;

Earn more than £8,105 a year; and

Work or ordinarily work in the UK (under their contract)

However, even if employees do not qualify to be automatically enrolled, they still have the right to join the scheme. If your employee tells you that they would like to opt in to the scheme, you must allow them to do so.

When is this happening?

Automatic enrolment began on 1 October 2012, individual employers' duties will be introduced gradually over the following five years, and will be based on the employer's size.

Click here to visit the Pensions Regulator's website to see the staging dates for employers.

Datafile and Auto-Enrolment

Generally enrolment within pensions is a HR driven process rather than a payroll process – the payroll system needs to be advised of the deductions to make but deciding which employees are eligible is outside the scope of the Datafile payroll system.

There may be data items you wish to add within Datafile, however, to assist in the management of pension enrolment.

Data Items to Consider

Employee Age – one of the determining factors in eligibility is the employee’s age.The employee’s date of birth is recorded on their employee record so you could add a forecast date item to calculate their age in years. (Forecast Date – type 1)

Employee Classification – each employee needs to be classified into different categories to determine pension auto-enrolment – eligible jobholder, non-eligible jobholder and entitled worker. You may want to record the classification against the employee record. This could be managed via a lookup database (payroll employee maintenance allows one lookup database) or via a table data item. If use a table data item ensure ranges start at 1000+ so as not to clash with the department settings.

Pension Member – depending on how Datafile is configured to deduct pension contributions (company pension scheme / stakeholder / switch) there may not be straight-forward criteria you can use on the employee file to identify employees who are / are not members. As such you may wish to create a flag item to record their membership status.

Pension Start Date – create a date type item (D/E type) to record the date the employee joined a qualifying pension scheme.

Pension Postponement – an employer can elect to delay enrolment for new employees who are otherwise eligible for automatic pension enrolment. If using this facility then you may wish to create a flag item to mark affected employees and set a date for which the postponement period ends (you could run reports using this flag / date as guides for employees whose postponement period has expired).

Employee Opt Out Date – if the employee opts out of auto-enrolment then you need to record the date here. As part of HR management employees should be automatically enrolled again after three years so you will need to periodically review this data to see if any employees need to be re-enrolled.

Pension Contributions – the P11 transaction file can be used to record the employee pension contributions and this will be retained as part of the year end in the payroll history companies. To copy values you need to create items in the P11 database with the same name/type as the pension item(s) on the employee/employee2/switch file (as appropriate). 

Record Keeping

You can use the SCANS option within the Payroll Ledger Enquiry to record copies of any opt-in, joining or opt-out notices.

As mentioned above the P11 transaction file can be used to record the employee pension contributions. Contribution details can then be reported via a P11 listing or statement print as required. 

Pension Contribution Options

In the Datafile system there are three options available for pension contributions and employees may be set to use any of these options. 

Company Pension Scheme – payroll system profiles allows you to define the global scheme settings (whether contributions are calculated based on Basic% or Gross%, whether contributions are tax deductible and so on), employee maintenance allows setting of contribution levels for the employee and employer.

Stakeholder Pension Scheme – if using the stakeholder scheme then options are available within the PENS option in Employee Maintenance to set contribution calculations and values. Note that Stakeholder contributions are always a deduction after tax.

Switches – employee contributions can be set as a deduction switch.