automatic
enrolment, some more practical points (50)
by
Roderick Ramage, solicitor, www.law-office.co.uk
first
posted on this site on 1 January 2017
DISCLAIMER
This article is not advice to any
person and may not be taken as a definitive statement of the law in general or
in any particular case. The author does not accept any responsibility for
anything that any person does or does not do as a result of reading it.
Previous practical points are in article
44.
earnings
1
“Qualifying Earnings” for the purposes of AE are defined in the
Pensions Act 2008, s13(3) as: (a) salary, wages, commission, bonuses and
overtime; (b) statutory sick pay; (c) statutory maternity pay; (d) statutory
paternity pay; (e) statutory adoption pay; (f) statutory shared parental pay;
and (g) prescribed sums (none have been).
The same applies to the alternative basis of satisfying the quality test
in the definition of “pensionable earnings”.
2
All earning in the categories (a) to (g) must but no other earnings
are required to be taken into account in the calculation of the minimum
contributions that must be paid. The
same applies also to employees who, because of membership of a qualifying
pension scheme, are exempt from AE.
3
None of any contractual benefits that an employer provides for
employees in excess of the statutory amounts are governed by the relevant
legislation, but are paid by it either under a contractual obligation or
gratuitously. Contract governs whether
AE pension contributions are paid in respect of benefits in excess of the statutory
amounts.
contributions above the statutory
minimum
4
The contribution rates payable under the PA 2008 are minima. There
is nothing to prevent higher amounts from being paid, but the law is silent
whether an employer may require an employee to pay more. If the sole or main purpose of requiring employers to pay
contributions at a higher rate is to induce them to give up membership, the
employer would be guilty of an offence under s54 of the PA 2008. The
prudent employer wishing to pay more should enrol employees automatically at
the minimum rates and agree, eg, to match any higher rate paid by the employee
up to a specified amount or multiple.
certification and records
5
A scheme is to be taken to satisfy the relevant quality requirement
in relation to each of an employer's relevant jobholders if a certificate is in
force: PA 2008, s28. The certificate is to
be given by or with the authority of the employer for a period not over
eighteen months, and copies must be provided on request to the Pensions Regulator,
jobholders and unions. No certificate is
required if the terms of the scheme require contributions in accordance with
the quality requirement or if the employer makes individual entitlement checks
on all its employees: TPR’s Detailed
Guidance 4 Appendix F Entitlement check .
Small employers might find that individual checks are simpler and less
burdensome than certification. All
employers, however small, must keep records of their pension arrangements, the enrolment
of employees, the opting-in and -out of their employees and their contributions:
SI 2010/5.
(compulsory) contractual enrolment
6
The employer is not required to enrol an employee automatically if
he is already an active member of a qualifying scheme. Some employers with existing schemes enrol
employees compulsorily, into them and rely on inertia to keep them in. Although consent to join might be implied,
consent to the deduction of contributions from wages must be in writing, so in
law, even if not in practice, compulsory contractual enrolment is limited to non-contributory
schemes or where the employment terms contain a sufficiently wide consent to
deductions from wages. Any member who
leave such a scheme will have to be assessed and if necessary enrolled under PA
2008, probably at the minimum rates.
Pensions Act 1993 s160
7
This provision, that any term of a contract of service to the
effect that an employee must be a member of a or a particular pension scheme is
void, applies to an AE scheme as to any other pension scheme. Therefore an employee, who did not opt out of
his employer’s AE scheme in the statutory opt-out period, cannot be compelled
to remain a member of it. A employee who
opts-out will receive an refund of his contributions to it, but whether or not
he would receive a refund on leaving later depends on the terms of the scheme.
maternity and other statutory family
pay
8
Maternity and other family related statutory pay listed in 1 apply
for AE, but the ERA, s71(4)(a) (maternity pay) and the corresponding provisions
for adoption, shared parental and parental leave raise an additional problem in
respect of money purchase schemes.
9
The employee is entitled to the benefit of the terms and conditions
other than remuneration that would have applied but for the leave of absence,
but the employee’s contributions are to be calculated by reference to the
statutory pay. The benefits under a DB
scheme are determined usually by final or average salary, regardless of the amount
of the employee’s contributions. In a
money purchase scheme, the amount of the employee’s benefits depends on the contributions
paid. It can be concluded from this (but
ignored in practice) that the employer must make good any shortfall in the
employee’s contributions, in order to ensure that the latter receives the same
benefits that would have provided but for the leave. See also pension law article 4 on my website.
sick leave
10
The Social Security and Benefits Act 1992 s157 entitles employee to
statutory sick pay of a specified amount, but does not give any statutory right
to benefits other than pay during periods of absence because of illness or
injury. The problem in 9 above does not
apply.
directors and partners
11
With effect from 6 April 2016, an employer may, instead of
must, enrol automatically into a pension scheme directors of a company who are
employed by it or, in the case of an LLP,
members, who are not treated for income tax as being employed by it.
salary sacrifice
12
Salary sacrifice is often introduced with AE. Because the employee would receive tax relief
on his contributions, the benefit is the saving of NICs for both the employer
and employee. The employer may but does
not always give the employees the benefit of all or part of its NIC saving. Salary sacrifice is effected by an agreement
between the employer and employee to change the terms of employment, and can be
effected only for matters which can be changed by contract. The payment of SMP etc and the amount of them
are determined by law and not contract and therefore cannot be altered by a
salary sacrifice agreement. If an
employer wishes to introduce salary sacrifice by an implied change, it should
follow the procedure described in HMRC’s Employment Income Manual page
IEM42753. The salary sacrifice agreement
can include terms for its termination unilaterally, by notice or automatically
by a change in circumstances to avoid the need for a separate agreement
whenever a change is needed.
END
copyright Roderick Ramage
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