Automatic cycle

Employers must be ready to re-enrol staff into a workplace pension if they previously opted out.

Three years on from the start of auto-enrolment, large companies are restarting the process of enrolling eligible staff into a workplace pension. Re-enrolment happens on a three-year cycle and attempts to gather up employees who opted out during the first round of auto-enrolment.

Over the next 12 to 24 months, it will be the turn of medium-sized companies to go through re-enrolment, as businesses with as few as 60 employees reach the third-year anniversary of their ‘staging date’. Smaller businesses will follow soon after.

Employees who opted out during the previous round must be automatically re-enrolled, with a few exceptions. For example, employees who are about to leave the company, or who opted out within 12 months of the re-enrolment date, do not have to be put in the scheme.

Starting over

Ian Price, divisional director at St. James’s Place, admits that re-enrolment presents its own challenges and some smaller companies may be unaware of their obligations to re-enroll employees after three years. He says that re-enrolment is also a timely reminder to businesses that are aware, but not technically compliant, to resolve any outstanding issues. “If there are problems or inconsistencies with the automatic enrolment scheme, then it’s time to iron those issues out before re-enrolment starts,” he says.

Price suggests the regulator may look sympathetically towards those that have identified a problem and taken action to remedy it, but companies that ignore their obligations could face fines of up to £10,000 per day, depending on their size. Between July and September this year the regulator issued 469 compliance notices, 85 unpaid contributions notices, 107 fixed penalty notices and 2 escalating penalty notices.1

“Clearly, The Pensions Regulator isn’t afraid to use its powers to enforce the rules,” remarks Price, “but most non-compliance has been unintentional and the regulator has shown a willingness to work with employers to put things right.”

Companies can re-enroll staff on any date up to three months before, or after, the three-year anniversary. This gives companies a six-month window for completing the process.

Price says rather than seeing re-enrolment as an extra burden, employers should see it as an opportunity to re-evaluate their existing scheme and communicate with eligible jobholders.

After shock

Although companies must write to their affected employees after they have been automatically enrolled into the pension scheme, they are not obliged to communicate beforehand. “It could come as a shock if staff discover they have been enrolled without receiving prior notice,” says Price. “Many workers will have forgotten that they would be re-enrolled after three years, so telling them beforehand makes sense,” he suggests.

Furthermore, he says that because the pension regime has changed significantly since auto-enrolment first started in 2012, writing to staff about their workplace pension could be an opportunity to explain the new freedoms.

“When auto-enrolment first started, taking money from a defined contribution pension was a much more restrictive process, so some workers may have opted out and put money elsewhere,” says Price. “You can now take an unrestricted amount from age 55, and the prospects for passing your pension tax-free to children have improved drastically, so pensions are much more attractive compared to three years ago,” he observes.

“We could see opt-out rates fall as a result of the freedoms, and those already in the auto-enrolment scheme may wish to start making larger contributions,” remarks Price.

1, 29 October 2015

Andrew Rogers

As a Partner Practice of the prestigious St. James's Place Wealth Management, I have provided financial advice for businesses and private individuals for 27 years.

My wealth management services focus on building relationships, based on my core values of empathy and trust to fully understand each client’s unique financial needs and future aspirations.

With many years of hands-on experience in the financial services, I have the industry knowledge to work closely with clients to provide solutions that meet both their immediate and long-term personal and business goals.

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