Guide for Local Government Pension Scheme employers and admission bodies

Transcription

1 Preparing for automatic enrolment Guide for Local Government Pension Scheme employers and admission bodies June 2013 A

2 Introduction This guide is intended to highlight key aspects of the automatic enrolment regime and how they will apply in the context of the Local Government Pension Scheme. The answers in this guide are based upon the legislation as at 6 April 2013 as well as guidance published by the Pensions Regulator, HM Revenue and Customs and the Local Government Pensions Committee. For ease of reference, it is presented in a question and answer format. If you require any further information on automatic enrolment, please speak to your usual Eversheds adviser or contact: Gary Delderfield Partner Direct: Main: garydelderfield@eversheds.com Sarah Franklin Partner Direct: Main: sarahfranklin@eversheds.com This is a general guide and it is not a substitute for seeking specific legal advice. Where an employer has any doubts about its automatic enrolment obligations or the status of a worker for automatic enrolment purposes it should seek legal advice.

3 Contents What is automatic enrolment? 1 Does automatic enrolment apply to public sector employers? 1 When do the automatic enrolment requirements apply and what are staging dates? 1 Who is eligible for automatic enrolment? 2 Who is a worker for automatic enrolment purposes? 4 How are employees with multiple contracts of employment treated? 5 Can the LGPS be used as an automatic enrolment scheme for all workers? 5 How will the LGPS operate automatic enrolment for workers of Scheme employers? 5 How will the LGPS operate automatic enrolment for workers of admission bodies? 7 What about employees who are already members of the LGPS? 9 When can a worker opt-out? 9 What is automatic re-enrolment and what must an employer do when a worker opts-out of the LGPS? 10 What about workers with lifetime allowance protection? 11 Can automatic enrolment be postponed? 12 What information must an employer provide to its workers about automatic enrolment? 12 What are the penalties for failing to comply with automatic enrolment? 13 How will workers automatic enrolment rights be protected? 13 What should employers do to prepare for automatic enrolment? 14 What if I have other questions? 16

4 Set out below is a series of questions and answers which seek to explain key aspects of the automatic enrolment regime and how these will apply in the context of the Local Government Pension Scheme (LGPS). What is automatic enrolment? New legal requirements are being phased in from 1 October 2012, starting with the largest employers, that will ultimately apply to all employers (including those in the public sector) with workers in the UK, requiring them (amongst other things) to: automatically enrol eligible workers into a qualifying pension scheme pay a minimum level of employer pension contributions or provide a minimum level of benefits provide information to their workers about their automatic enrolment rights automatically re-enrol eligible workers who opt-out approximately every three years register with the Pensions Regulator within four months of their starting date and maintain records to demonstrate compliance for a minimum of six years (four years in the case of opt-out notices). Various protections have been introduced to safeguard workers automatic enrolment rights, many of which have applied since 1 July 2012, regardless of an employer s staging date. Read How will workers automatic enrolment rights be protected? for more details. Automatic enrolment is a new legal duty that will ultimately apply to all UK employers, requiring them to automatically enrol eligible workers into a qualifying pension scheme... Does automatic enrolment apply to public sector employers? Yes. The automatic enrolment requirements will apply to all public sector employers as well as private sector employers, including those who enter into public sector outsourcing contracts. When do the automatic enrolment requirements apply and what are staging dates? The automatic enrolment duties have been being phased in from 1 October 2012, starting with the largest employers. Employers must be prepared to comply with these new legal requirements from their staging date. An employer s staging date is determined (broadly) by the number of people in its largest PAYE payroll scheme on 1 April 2012: An employer with 10,000 or more people in its largest PAYE payroll scheme will have had a staging date between 1 October 2012 and 1 March An employer with between 250 and 9,999 in its largest PAYE payroll scheme will have a staging date between 1 April 2013 and 1 February An employer with between 50 and 249 people in its largest PAYE payroll scheme will have a staging date between 1 April 2014 and 1 April An employer with less than 50 people in its largest PAYE payroll scheme will have a staging date between 1 June 2015 and 1 April

5 Where a number of employers use the same PAYE payroll scheme (and therefore have the same PAYE reference number), the staging date for all of the employers will be the same (assuming this is the largest payroll scheme in which they each participate) and it will be determined (broadly) by the total number of people in the payroll scheme on 1 April Special arrangements are in place for small employers in shared PAYE payroll schemes. The Pensions Regulator is responsible for ensuring that employers comply with their automatic enrolment obligations and it has said that it will write to every employer to confirm their staging date around 12 months before the relevant date. In the meantime, an employer can find out its staging date from the Pensions Regulator s website. Employers can also contact the Pensions Regulator to confirm their staging date. To allow some flexibility, employers may choose an earlier staging date. However, an employer cannot choose a later staging date than the one that applies to it. A change in the number of persons in an employer s payroll scheme after 1 April 2012 will not affect the employer s staging date, even if the change is significant. Where a new employer is established after 1 April 2012, it will have a staging date no earlier than 1 May Who is eligible for automatic enrolment? For automatic enrolment purposes, workers are divided into three categories: eligible jobholders who must be automatically enrolled into a qualifying pension scheme (into which must be paid a minimum level of contributions or which provides a minimum level of benefits) non-eligible jobholders who have the right to opt-in to a qualifying pension scheme, and should be treated as eligible jobholders if they do so entitled workers who must be given the opportunity to join a workplace pension scheme, but they are not entitled to employer contributions or a minimum level of benefits. Eligible jobholders From its staging date, an employer will be required to automatically enrol all eligible jobholders into a qualifying pension scheme, unless they are already an active member of such a scheme. An eligible jobholder is a worker: (i) who is working, or ordinarily working, in the UK 1 (ii) at least 22 years of age and below state pension age (iii) to whom earnings of more than 9,440 per annum (for the 2013/14 tax year) are payable by the employer in the relevant pay reference period, measured on a pro rata basis (the earnings trigger ). Whether or not a worker s earnings exceed the earnings trigger has to be assessed on a pro rata basis in each pay reference period. So the earnings trigger for a worker who is paid on a weekly basis is currently 182 per week. For a worker paid on a monthly basis, the earnings trigger is currently 787 per month (for the 2013/14 tax year). For these purposes, a worker s earnings will include: From its staging date, an employer will be required to automatically enrol all eligible jobholders into a qualifying pension scheme, unless they are already an active member of such a scheme. salary and wages commission, bonuses and overtime payments statutory sick pay statutory maternity pay, ordinary and additional statutory paternity pay, and statutory adoption pay. 1 This includes England, Wales, Scotland and Northern Ireland (but it does not include the Channel Islands). 2

6 The first date on which a worker meets all three eligibility criteria is the date from which they should be automatically enrolled (this is known as the individual s automatic enrolment date ). Non-eligible jobholders A worker who is earning 5,668 or more and less than 9,440 per annum (for the 2013/14 tax year) and who is aged between 16 and 75 and a worker who is earning more than 9,440 per annum (for the 2013/14 tax year) but who is aged between 16 and 22 or state pension age and age 75, will be classed as a non-eligible jobholder. A non-eligible jobholder is not entitled to be automatically enrolled into a qualifying pension scheme, but they must be given the opportunity to opt-in to such a scheme. Where they do so, they will be entitled to receive the minimum level of employer contributions or benefits and the employer must treat them in the same way as eligible jobholders. Entitled workers Workers earning less than 5,668 per annum (for the 2013/14 tax year) are classed as entitled workers and they must be given the opportunity to join a workplace pension scheme, but this does not have to be a qualifying pension scheme and they are not entitled to receive employer contributions or a minimum level of benefits, although an employer may choose to provide this if it wishes. A non-eligible jobholder is not entitled to be automatically enrolled into a qualifying pension scheme, but they must be given the opportunity to opt-in to such a scheme. Monitoring workers status Employers will need to monitor the age and earnings of all non-eligible jobholders and entitled workers on an ongoing basis, to track any changes in their status. In particular, employers will need to monitor each workers earnings in every pay reference period to check whether they exceed the earnings thresholds to be treated as a non-eligible jobholder or an eligible jobholder (as appropriate). A pay reference period is the period by reference to which a worker is normally paid (for example, weekly, fortnightly or monthly). Summary The various categories of workers and their eligibility for automatic enrolment is summarised in the table below: Earnings per annum 2 Age (working/ordinarily working in UK) Age 22 SPA* (working/ordinarily working in UK) SPA* Age 74 (working/ordinarily working in UK) Above 9,440 (income tax personal allowance) Non-eligible jobholder Must be given the right to opt-in to a qualifying pension scheme Eligible jobholder Must be automatically enrolled into a qualifying pension scheme (may opt-out) Non-eligible jobholder Must be given the right to opt-in to a qualifying pension scheme Between 5,668 and 9,440 Non-eligible jobholder Must be given the right to opt-in to a qualifying pension scheme Less than 5,668 Entitled worker Must be given the right to opt-in to a pension scheme (this does not have to be a qualifying pension scheme and they are not entitled to employer contributions) * SPA means State Pension Age 2 For the 2013/2014 tax year 3

7 The LGPS eligibility criteria The automatic enrolment eligibility categories are not reflected in the eligibility criteria to be admitted to membership of the LGPS. For example, an employee of a Scheme employer listed under Part 1 of Schedule 2 to the Administration Regulations, who has a contract of employment for three months or more, will become a member of the LGPS on their first day of employment or the day that that person s employer becomes a Scheme employer (if later), irrespective of whether they are an eligible jobholder, a non-eligible jobholder or an entitled worker. In addition, there may be some individuals who are eligible to be automatically enrolled into a qualifying pension scheme but who are not eligible to join the LGPS, such as a consultant who is not genuinely self-employed who may not be an employee but who may still be a worker for automatic enrolment purposes. Who is a worker for automatic enrolment purposes? The automatic enrolment requirements apply to anyone who is a worker and who is working, or ordinarily working, in the UK. For these purposes, a worker includes: employees temporary and casual workers no obligation workers (or NOMOs ) agency workers consultants and contractors who are not genuinely self-employed anyone else who agrees to do work or perform services personally for another party and who is not self-employed. It is up to an employer to determine whether or not each member of its staff (and anyone else it engages to do work) is a worker for automatic enrolment purposes, taking legal advice where necessary. Whether or not an individual is a worker is likely to be obvious for most members of staff, but there may be some individuals where it is less clear cut. There are a series of employment law tests that can be applied to determine whether an individual is a worker or not. The status of contractors, freelancers and consultants will depend on the particular circumstances and employers should consider the position of such workers carefully and seek legal advice. It is up to an employer to determine whether or not each member of staff is a worker for automatic enrolment purposes, taking legal advice where necessary. Agency workers are specifically covered by the automatic enrolment requirements. The duties fall on the person responsible for paying the agency worker. In most cases, this is likely to be the agency, which may then seek to pass on the costs associated with automatic enrolment to the hirer. Where the agency is responsible, the relevant staging date will be that of the agency, not the hirer. Individuals from overseas who are working in the UK could be covered, unless they are working in the UK as part of a genuine secondment arrangement. In some circumstances, the requirements may also apply to individuals who carry out their duties overseas but who work for a UK employer (for example, if an individual is on secondment overseas from the UK). 4

8 How are employees with multiple contracts of employment treated? Some public sector workers may have more than one contract of employment which may be with the same employer or different employers. Where a worker has more than one contract of employment with the same employer, the employer must decide whether these contracts constitute a single employment relationship with the worker or whether they should be treated separately. In making this assessment the employer must act reasonably and it must be able to justify its decision. Where the employment contracts are treated as being separate, the employer will need to assess the worker s eligibility for automatic enrolment under each contract individually. Where the employer decides that the contracts constitute a single employment relationship, it will need to treat the contracts as one when assessing the worker s eligibility. An employer does not need to take account of contracts of employment that a worker has with a different employer when assessing a worker s eligibility for automatic enrolment purposes. Can the LGPS be used as an automatic enrolment scheme for all workers? The Administration Regulations have been amended so that LGPS employers and admission bodies will be able to use the LGPS as their automatic enrolment scheme for all of their employees, including those employed under contracts of employment for less than three months. However, the automatic enrolment requirements apply to workers which includes people who are not employees. Therefore, there may be some individuals who are classified as workers (such as a some individuals employed on a consultancy basis) and who are eligible to be automatically enrolled but who are not eligible to join the LGPS. These individuals will need to be automatically enrolled into another automatic enrolment scheme. It is for an employer to determine which members of its staff are workers for automatic enrolment purposes. Legal advice should be obtained where there is any doubt about the status of an individual for automatic enrolment purposes. Particular care needs to be taken with consultants, contractors and temporary and casual workers. For more on this see Who is a worker for automatic enrolment purposes?. It is for an employer to determine which members of its staff are workers for automatic enrolment purposes. Legal advice should be obtained where there is any doubt. How will the LGPS operate automatic enrolment for workers of Scheme employers? New employees (with contracts of employment for three months or more) With effect from 1 October 2012, the Administration Regulations were amended so that all employees of Scheme employers listed under Part 1 of Schedule 2 of the Administration Regulations who are under age 75 will become active members of the LGPS on the day that the person s employment begins or the day that the person s employer becomes a Scheme employer (if later), apart from those with employment contracts for less than three months. This applies irrespective of whether the relevant employee is an eligible jobholder, a non-eligible jobholder or an entitled worker for automatic enrolment purposes. 5

9 The fact that new employees of Scheme employers (with employment contracts of more than three months) who are under age 75 will become active members of the LGPS on their first day of employment means that the statutory automatic enrolment duties will not apply to them when they first join the LGPS. Instead, they will be deemed to be contractually enrolled into the scheme. This has important implications and means that (amongst other things): The employee will not have a statutory right under the automatic enrolment legislation to opt-out of the scheme and receive a refund of their contributions (although they will be able to opt-out in accordance with rules of the LGPS). The employer does not need to provide them with the statutory automatic enrolment information, although it may choose to do so. The employer will need to assess the individual s status when they opt-out of the scheme in order to determine their re-enrolment duties (see What is automatic re-enrolment and what must an employer do when a worker opts-out of the LGPS? for more details). The fact that this change has taken effect from 1 October 2012 means that some new employees who are enrolled into the LGPS may opt-out before their employer s staging date. Where they do this their employer will be required to automatically re-enrol them into the LGPS on their staging date if they are eligible jobholders for the purposes of the automatic enrolment legislation at that time. To avoid this, employers may wish to either bring forward their staging date or apply the transitional period in respect of these individuals (see Can automatic enrolment be postponed? for more details). New employees (with contracts of employment for less than three months) With effect from 1 October 2012, employees of Scheme employers who are under age 75 and who are employed under a contract of employment for less than three months are eligible to become a member of the LGPS, however, they will not be automatically enrolled into the scheme. Instead they will need to apply to become an active member. To comply with the statutory automatic enrolment requirements, after its staging date, an employer will have to issue a waiting period notice to defer their statutory automatic enrolment requirements for up to three months in respect of any such employees who are eligible jobholders for the purposes of the automatic enrolment legislation (for more information on waiting periods see Can automatic enrolment be postponed? ). The individual will still have the right to opt-in to the LGPS during the waiting period. Existing employees who are not members of the LGPS Existing employees of Scheme employers who are not currently active members of the LGPS, will need to be assessed by their employer on the employer s staging date. If they are eligible jobholders for the purposes of the automatic enrolment legislation they will need to be automatically enrolled into the LGPS in accordance with the statutory requirements with effect from that date unless: the employer decides to operate a waiting period in respect of these individuals; or the employer decides to operate the transitional period in respect of these individuals. For more information on operating a waiting period or the transitional period see Can automatic enrolment be postponed?. 6

10 There is no express power under the Administration Regulations by which a Scheme employer can automatically enrol its existing staff into the LGPS on its staging date or automatically re-enrol its staff into the LGPS as and when it is required to do so under the automatic enrolment legislation. However, we understand that the Department for Communities and Local Government is relying upon the fact that employers will have a general power under the Pensions Act 2008 to automatically enrol their eligible workers into a qualifying pension scheme to enable Scheme employers to do this. Existing employees who are non-eligible jobholders on their employer s staging date will not need to be automatically enrolled into the LGPS but they will need to be notified of their right to opt-in to the LGPS. Similarly, employees who are entitled workers on that date will need to be informed of their right to join the scheme. Scheme employers will need to monitor the status of non-eligible jobholders and entitled workers on an ongoing basis after their staging date, because action will need to be taken if the individual s eligibility status for automatic enrolment purposes changes. For example, if a non-eligible jobholder or an entitled worker subsequently becomes an eligible jobholder their employer will be under a duty to automatically enrol them into a qualifying pension scheme at the time. Other workers Other workers who are engaged by Scheme employers who are not employees or who are over age 75 will not be eligible to join the LGPS. Therefore, their employer will need to make alternative arrangements to comply with its automatic enrolment duties in respect of them. For more information on the meaning of worker see Who is a worker for automatic enrolment purposes?. How will the LGPS operate automatic enrolment for workers of admission bodies? Employees designated under an admission agreement entered into on or after 1 October 2012 The Administration Regulations were amended so that, with effect from 1 October 2012, an employee of an admission body who has a contract of employment for three months or more, who is under age 75 and who is designated as being eligible for membership of the LGPS will become an active member of the scheme on the day the designation has effect. This fundamentally changes the way in which employees of admission bodies, who previously had to apply for LGPS membership, become members of the LGPS. It has been common practice on a TUPE transfer pursuant to an outsourcing contract, to designate all the transferring employees in the admission agreement as being eligible for LGPS membership, irrespective of whether they are active members of the LGPS immediately before the TUPE transfer. This has been done on the basis that they must apply for membership. If this practice continues after 1 October 2012, all transferring employees will become active members of the LGPS on the commencement of the admission agreement (although employees would still have the right to opt-out of membership). Therefore, admission agreements now need to be drafted differently in order to avoid this. Employees of admission bodies who have a contract of employment for less than three months and who are under age 75 will also be eligible to become a member of the LGPS, with effect from 1 October 2012, where they are designated as being eligible by their employer. However, they will not be automatically enrolled into the scheme. Instead they will need to apply to become a member of the LGPS. Therefore, if their employer decides to use the LGPS as its automatic enrolment scheme for these individuals it will need to issue a waiting period notice to defer its statutory automatic enrolment obligations for up to three months in respect of any such employees who are eligible jobholders (for more information on waiting periods see Can automatic enrolment be postponed? ). The individual will still have the right to opt-in to the LGPS during the waiting period. All transferring employees will become active members of the LGPS on the commencement of the admission agreement... Therefore, admission agreements now need to be drafted differently to avoid this. 7

11 Regardless of whether or not a worker is designated as being eligible to become a member of the LGPS under an admission agreement entered into by an admission body, their employer will be required to comply with the statutory automatic enrolment requirements in respect of them with effect from its staging date. Employees designated under an admission agreement entered into before 1 October 2012 The changes described above are intended to only apply to employees designated under an admission agreement on or after 1 October The implication of this change for employees who were designated before 1 October 2012 under an admission agreement entered into before that date, but who are not currently members of the LGPS, is not entirely clear. We are seeking clarification on this from the Department for Communities and Local Government. In any event, an employer will need to comply with its statutory automatic enrolment duties in respect of an employee who was designated before 1 October 2012 under an admission agreement entered into before that date. This means that where such an employee is not already an active member of the LGPS or another qualifying pension scheme on the employer s staging date, the employer will need to make arrangements for them to become an active member of a suitable scheme if the employee is an eligible jobholder on that date (unless the employer applies a waiting period or the transitional period in respect of them). Where an employee is designated on or after 1 October 2012 under an open admission agreement entered into before 1 October 2012, they will automatically become an active member of the LGPS on the date of designation, if they have a contract of employment for three months or more and are under age 75. If they have a contract of employment for less than three months they will need to apply to become a member of the LGPS and, on or after its staging date, their employer will need to apply the waiting period in respect of them, if they are an eligible jobholder for automatic enrolment purposes. In any event, an employer will need to comply with its statutory automatic enrolment duties in respect of an employee who was designated before 1 October 2012 under an admission agreement entered into before that date. Existing employees who are not active members of the LGPS or another qualifying pension scheme on an admission bodies staging date On its staging date an admission body will need to assess the status of any of its employees who are not currently active members of the LGPS or another qualifying pension scheme. 8

12 If they are eligible jobholders for the purposes of the automatic enrolment legislation they will need to be automatically enrolled into the LGPS or another qualifying pension scheme in accordance with the statutory requirements with effect from that date, unless the employer decides to operate a waiting period or the transitional period in respect of those individuals. For more information on operating a waiting period or the transitional period see Can automatic enrolment be postponed?. There is no express power under the amended Administration Regulations by which an admission body can automatically enrol its existing staff into the LGPS on, or after, its staging date or automatically re-enrol its staff into the LGPS as and when it is required to do so under the automatic enrolment legislation. However, we understand that the Department for Communities and Local Government is relying upon the fact that employers will have a general power under the Pensions Act 2008 to automatically enrol their eligible staff into a qualifying pension scheme to enable admission bodies to do this. Existing employees who are non-eligible jobholders on an admission body s staging date will not need to be automatically enrolled into an automatic enrolment scheme, but they will need to be notified of their right to opt-in to the LGPS or another qualifying pension scheme. Similarly, employees who are entitled workers on that date will need to be informed of their right to join a pension scheme. Admission bodies will need to monitor the status of non-eligible jobholders and entitled workers on an ongoing basis after their staging date, because action will need to be taken if the individual s eligibility status for automatic enrolment purposes changes. Non-designated employees and workers over age 75 Workers who are engaged by an admission body who are not designated employees and workers who are over 75 will not be eligible to join the LGPS. Therefore, their employer will need to make alternative arrangements to comply with its automatic enrolment duties in respect of them. What about employees who are already members of the LGPS? An employer will be deemed to have complied with its automatic enrolment duties in respect of employees who are already active members of the LGPS on the employer s staging date. In these circumstances, the employer need only provide current active members with general information about the pension scheme. This information should be provided within two months of the employer s staging date. If these employees subsequently opt-out of the LGPS after the employer s staging date, the employer will need to comply with its automatic re-enrolment duties in respect of them (for more details see What is automatic re-enrolment and what must an employer do when a worker opts-out of the LGPS? ). When can a worker opt-out? A new employee who has been or is due to be contractually enrolled into the LGPS in accordance with the Administration Regulations will be able to opt-out of the scheme in accordance with the rules of the LGPS. The DCLG has confirmed that after 1 October 2012 new employees can no longer opt-out before their employment commences. An employer will be deemed to have complied with its automatic enrolment duties in respect of employees who are already active members of the LGPS on the employer s staging date. Existing employees who are automatically enrolled or re-enrolled into the LGPS on or after an employer s staging date in accordance with the statutory automatic enrolment procedure will have a statutory right to opt-out of the scheme within (broadly speaking) one month of becoming active members of the scheme. Where they do this, they will be entitled to a refund of their contributions and they will be treated as if they never joined the scheme. To exercise their statutory right to opt-out, a worker will need to give a valid opt-out notice to their employer. The opt-out notice must contain certain prescribed information, 9

13 including warnings about the potential consequences of opting-out (such as the prospect of lower income in retirement). Generally speaking, after an employer s staging date the opt-out notice must come from the LGPS fund s administering authority and, in any event, it should not be included with the automatic enrolment information that is provided by the employer when the employee is automatically enrolled into the scheme. A worker will still be able to cease active membership of the LGPS after the statutory opt-out period has ended in accordance with scheme s rules. Where an individual opts-out of the LGPS, they may need to be re-enrolled into the scheme by their employer in the future. For more information on automatic re-enrolment see What is automatic re-enrolment and what must an employer do when a worker opts-out of the LGPS?. What is automatic re-enrolment and what must an employer do when a worker opts-out of the LGPS? Scheme employers will be under a legal duty to re-enrol workers who opt-out of the LGPS in accordance with the requirements of the automatic enrolment legislation. These requirements vary depending upon how an individual was enrolled into the LGPS (on the last occasion that they became an active member of the scheme) and what their eligibility status for automatic enrolment purposes has been during their period of active membership. Contractual enrolment in accordance with Administration Regulations Where a worker who has been contractually enrolled into the LGPS in accordance with the operation of the Administration Regulations opts-out, their employer will need to determine whether that individual has been an eligible jobholder at any point during their period of active membership: If the individual has been an eligible jobholder, the employer will need to automatically re-enrol that individual on the employer s next re-enrolment date (which will be approximately three years after the employer s staging date), if the individual is still employed by the employer and meets the criteria to be an eligible jobholder at that time. The only exception to this is where the individual opts-out within 12 months of the employer s next re-enrolment date, in which case, the worker will not need to be re-enrolled until the employer s subsequent re-enrolment date, if the individual is still employed by the employer and meets the criteria to be an eligible jobholder at that time. If the individual has not been an eligible jobholder at any point during their period of active membership (ie they have only ever been a non-eligible jobholder or an entitled worker), the employer will need to monitor the status of that individual for automatic enrolment purposes on an ongoing basis going forwards. If that individual subsequently becomes an eligible jobholder they will need to be automatically enrolled back into the LGPS at that time (subject to the employer s right to operate a waiting period). Also, if an entitled worker subsequently becomes a non-eligible jobholder they will need to be notified of their right to opt-in to the LGPS. Where an individual opts-out of the LGPS, they may need to be reenrolled into the scheme by their employer in the future... These requirements vary depending upon how an individual was enrolled into the LGPS and what their eligibility status has been during their period of active membership. Amongst others, new employees of Scheme employers listed under Part 1 of Schedule 2 and employees designated as being eligible to join the LGPS under an admission agreement after 1 October 2012 will be contractually enrolled into the LGPS. Therefore, care needs to be taken as and when they opt-out of the scheme to determine the employer s automatic re-enrolment duties in respect of them. 10

14 Automatic enrolment in accordance with statutory procedure Where an individual who has been automatically enrolled into the LGPS in accordance with the statutory automatic enrolment procedure opts-out of the scheme, their employer will be required to automatically re-enrol them back into the LGPS on the employer s next re-enrolment date (which will be approximately three years after the employer s staging date), if the individual is still employed by the employer and meets the criteria to be an eligible jobholder at that time. The only exception to this is where the individual opts-out within 12 months of the employer s next re-enrolment date, in which case, the worker will not need to be re-enrolled until the employer s subsequent re-enrolment date, if the individual is still employed by the employer and meets the criteria to be an eligible jobholder at that time. What about workers with lifetime allowance protection? Contractual enrolment HMRC has confirmed that if an employer contractually enrols a worker who has fixed protection in respect of the lifetime allowance into a pension scheme, the individual will not lose their fixed protection provided the scheme has a legally binding rule that treats an individual who opts out of scheme membership as never having been a member of the scheme. The LGPS regulations provide that where a member gives notice to leave the scheme within the first three months he must be treated as not having been a member in that period. Therefore, on the face of it, where a member with fixed protection leaves the LGPS within the first three months after having been contractually enrolled, they should not lose their tax protection. However, it is uncertain whether a member with fixed protection who is contractually enrolled into the LGPS and who opts-out one month or more after joining the scheme will maintain their tax protection. HMRC s statement does not make clear whether a member who is contractually enrolled must opt-out within a particular time period in order to maintain their fixed protection. This is in contrast to the position where someone is automatically enrolled in accordance with the statutory process who must opt-out within one month of becoming an active member of the relevant scheme to maintain their tax protection. Where an employer plans to contractually enrol its workers into a scheme other than the LGPS, it is vital that that scheme contains a rule that treats an individual as never having been a member of the scheme if they opt-out within, as a minimum, the first month. In the absence of this, individuals with fixed protection will lose their tax protection as soon as they are contractually enrolled into the scheme. HMRC has not made clear whether it will adopt the same approach as that outlined above where an individual with enhanced protection in respect of the lifetime allowance is contractually enrolled into a pension scheme. However, we anticipate that it will do so. Statutory enrolment Individuals with fixed or enhanced protection who are automatically enrolled into the LGPS or another automatic enrolment scheme in accordance with the statutory procedure under the Pensions Act 2008 will lose their tax protection if they do not opt-out of the scheme within the one-month statutory opt-out window. Action An employer should take steps to identify whether any of its workers have fixed or enhanced protection and inform them of the need to opt-out of the LGPS (or any other automatic enrolment scheme that is used by the employer) as soon as possible (and ideally within the first month) if they want to maintain their tax protection. This issue should also be highlighted in general communications to workers about automatic enrolment. 11

15 Workers with fixed or enhanced protection will need to be equally vigilant when their employer s re-enrolment obligations arise every three years. Many employers are also planning to ask new joiners whether they have fixed or enhanced protection as part of their recruitment process, so that they can inform them of the consequences if they do not opt-out of the LGPS (or any other automatic enrolment scheme that is used by the employer) in time. The Government has said that it is planning to introduce an exemption, from the automatic enrolment requirements for workers with fixed or enhanced protection. However, at the time of writing, the detail of the exemption has not been published and it is not known how it will operate nor in what circumstances. In the meantime, workers with fixed or enhanced protection need to opt-out in order to maintain their tax protection, as explained above. Can automatic enrolment be postponed? LGPS employers can postpone the duty to automatically enrol eligible jobholders into a qualifying pension scheme by: operating a waiting period of up to three months; or making use of the transitional period (until 1 October 2017) which can be applied in respect of certain individuals who are eligible to join a defined benefit pension scheme or a hybrid pension scheme on the employer s staging date. In both cases the employer must give written notice to the affected workers. In addition, those workers have the right to opt-in to a qualifying pension scheme during the waiting period or the transitional period (as appropriate). Employers with employees who are eligible jobholders and who are employed on contracts of employment for less than three months must issue a waiting period notice to defer the automatic enrolment requirements for up to three months, where the employer intends to use the LGPS as its automatic enrolment scheme in respect of them. An employer who fails to issue this notice will be in breach of its automatic enrolment obligations, because under the Administration Regulations these individuals will not be automatically enrolled into the LGPS, they will instead have to apply to become an active member. Employers with employees who are eligible jobholders and who are employed on contracts of employment for less than three months must issue a waiting period notice... What information must an employer provide to its workers about automatic enrolment? Where a worker is automatically enrolled into the LGPS or another qualifying pension scheme in accordance with the statutory procedure (as opposed to being contractually enrolled ) their employer must provide them with specified information in writing within prescribed time limits. The information that needs to be provided varies depending upon whether a worker is an eligible jobholder, a non-eligible jobholder or an entitled worker and whether they are already active members of a qualifying pension scheme on the employer s staging date (or the date on which the auto-enrolment legislation first applies to them, if later). For workers who are not already active members of the LGPS (or another qualifying pension scheme) on the employer s staging date (or the date on which the autoenrolment legislation first applies to them, if later), the employer will need to (amongst other things): inform eligible jobholders that they have been or will be automatically enrolled into the relevant scheme and provide them with information about the scheme (including the contribution rates and the benefits provided) and information about their right to opt out inform non-eligible jobholders of their right to opt-in to the scheme inform entitled workers of their right to join a pension scheme. 12

16 Generally speaking, this information must be provided within one month of the worker s automatic enrolment rights arising. An employer only needs to provide limited information to a jobholder who is already an active member of the LGPS (or another qualifying pension scheme) on the employer s staging date (or the date on which they first become a jobholder, if later), including confirmation that the jobholder is an active member of the relevant scheme. This information must be provided within two months of the employer s staging date or the date on which the worker first becomes a jobholder (if this is later). Where a worker is contractually enrolled into the LGPS in accordance with the operation of the Administration Regulations they do not need to be provided with the statutory automatic enrolment information. However, they will still need to be provided with information about the pension scheme in accordance with the general pensions disclosure requirements. What are the penalties for failing to comply with the automatic enrolment requirements? The Pensions Regulator has been given various powers to enable it to ensure compliance with the automatic enrolment legislation. These powers include the power to: inspect automatic enrolment records held by an employer issue compliance notices, requiring an employer to take action to comply with its legal obligations issue fixed penalties of 400 on employers and third parties issue escalating penalties ranging from 50 to 10,000 per day, depending upon the size of an employer s PAYE scheme(s), for serious or persistent breaches. How will workers automatic enrolment rights be protected? The following legal safeguards have been introduced to protect workers and job applicants: i. Prohibited recruitment conduct during the recruitment process an employer or their representative must not ask any question, or make any statement (whether written or verbal) that either states or implies that a job applicant s success could depend on whether or not they opt out of an automatic enrolment scheme. ii. Prohibition against inducing opt-outs an employer must not take any action, the sole or main purpose of which is to induce a worker to opt out of automatic enrolment or to cease active membership of a qualifying pension scheme without becoming a member of another such scheme. An employer must not take any action, the sole or main purpose of which is to induce a worker to opt out of automatic enrolment... iii. Prohibition against detrimental treatment and unfair dismissal an employer must not subject a worker to detrimental treatment or dismiss a worker due to the fact that the automatic enrolment legislation applies, or will or might apply, to the worker, the worker has taken action to enforce their automatic enrolment rights or the employer has been prosecuted for wilfully failing to comply with its duties. Any dismissal connected with the enforcement of an individual s automatic enrolment rights will be deemed to be automatically unfair and the normal rules on qualifying service do not apply. iv. Prohibition against stopping active membership of a qualifying pension scheme an employer must not take action, or fail to take action, which results in a jobholder ceasing to be an active member of a qualifying pension scheme unless the worker asks to leave the scheme, is already an active member of another qualifying scheme, or immediately becomes an active member of another qualifying scheme. 13

17 Employers have been required to comply with safeguards (i), (ii) and (iii) with effect from 1 July 2012, regardless of their size or staging date. Safeguard (iv) will apply from an employer s staging date. In addition, an employer may be subject to criminal proceedings if it wilfully fails to comply with its automatic enrolment duty, its re-enrolment duty or its duty to enrol jobholders who opt-in. Criminal proceedings may also be commenced against company directors and partners in a partnership who were party to the default by the employer. Any person who is found guilty of wilful failure to comply with their automatic enrolment duties may imprisoned, fined or both. A worker can complain to the Pensions Regulator which may issue a compliance notice to any employer who breaches prohibitions (i), (ii) or (iii). The Regulator may also impose a fine ranging from 1,000 to 5,000 on an employer that contravenes the prohibition against prohibited recruitment conduct. A worker who is a victim of detrimental treatment or unfair dismissal can enforce their rights in an Employment Tribunal. What should your organisation do to prepare for automatic enrolment? Updating payroll, HR and administrative systems to be able to cope with automatic enrolment and to ensure compliance is a very involved process and it will require co-ordinated action to be taken by your organisation s HR, pensions, payroll, IT and communications teams. Your organisation should, ideally, allow 12 to 18 months to prepare. Some of the key steps that you will need to take to prepare for the introduction of automatic enrolment are set out below. 1. Find out when the new automatic enrolment duties apply to your organisation To ensure success, an employer should put together a team made up of representatives from their HR, pensions, payroll, IT and communications teams, to project manage the design and implementation of their automatic enrolment strategy. Read When do the automatic enrolment requirements apply and what are staging dates? for more information. To confirm your organisation s staging date you can contact the Regulator s automatic enrolment helpline on or visit The Pensions Regulator s website. 2. Put together a project management team To ensure success, your organisation should put together a team made up of representatives from your HR, pensions, payroll, IT and communications teams, to project manage the design and implementation of their automatic enrolment strategy. 3. Identify the workers that will be covered You need to assess which eligibility category each of your existing workers fall into, in order to calculate the likely cost of compliance as well as the potential impact on future HR strategy and pay awards. Read Who is eligible for automatic enrolment? for more information. 14

18 4. Put in place administrative systems, payroll processes and record-keeping to cope with automatic enrolment, opt-outs, opt-ins and re-enrolment Existing payroll software and systems will need to updated to enable your organisation to comply with its new duties, in particular the requirement to monitor workers age and earnings. Steps should be taken to update existing software and systems at an early stage in the planning process and sufficient time should be set aside to test systems before your staging date. Administrative systems will also need to be put in place to deal with automatic enrolment, process opt-outs and opt-ins and to deal with automatic re-enrolment. In addition, you will need to determine who will be responsible for providing information to the different categories of workers. Read What information must be provided to workers about automatic enrolment? for more information. 5. Review existing contracts of employment and offer documentation You should review contracts of employment for new and existing staff and offer documentation for provisions that may conflict with the automatic enrolment requirements. 6. Develop an effective communication strategy Communication is key to the success of automatic enrolment. Therefore, you need to develop an effective communication strategy to ensure that your workforce knows what is happening, when and how they stand to benefit. As well as deciding upon your overall communication strategy, your organisation also needs to ensure that it is prepared to provide workers with the mandatory automatic enrolment information that it will be legally obliged to provide to its workers within the relevant statutory timescales. Read What information must be provided to workers about automatic enrolment? for more information. 7. Appoint somebody to oversee compliance Failure to comply with the automatic enrolment requirements could lead to enforcement action being taken by the Pensions Regulator (which may include a significant fine). Therefore, it is important that someone within your organisation is appointed to oversee compliance, whether this is someone in HR, payroll, pensions or elsewhere. Read What are the penalties for failing to comply with automatic enrolment? for more information. 8. Don t forget data protection! As your organisation prepares for automatic enrolment it is vital that it addresses any data protection issues that arise. In particular, it is essential that any agreements that you put in place with third parties to whom you will pass workers data deal with data protection and that you take steps to ensure that any data that is passed on will be properly safeguarded. Existing arrangements may also need to be reviewed to ensure that they satisfy the requirements of the data protection laws. 15

19 What if I have other questions? Automatic enrolment generates a host of different questions and issues, depending on an employer s individual circumstances, which are beyond the scope of this guide. However, our public sector automatic enrolment team which consists of pensions, employment and tax experts are dealing with these issues on a daily basis and they would be delighted to assist you. If you would like further assistance, please speak to your usual Eversheds advisor or contact garydelderfield@eversheds.com or sarahfranklin@eversheds.com if you require more information about automatic enrolment. Eversheds also offers a variety of training courses on automatic enrolment which we can run for your HR, pensions and payroll teams. Please contact timsmith@eversheds.com for more information. Eversheds also offers a variety of training products on automatic enrolment which we can run for your HR, pensions and payroll teams. Eversheds LLP, 2013 This guide is not a substitute for seeking specific legal advice. Where an employer has any doubts about its automatic enrolment obligations or the status of a worker for automatic enrolment purposes it should seek legal advice. 16

20 Eversheds LLP Eversheds LLP is a limited liability partnership. EHRG.938