13 September 2012 - Post by:Helen Powell
Last week the Government gave the first indication of the numbers it is likely to use for the earnings trigger and qualifying earnings band for auto-enrolment for 2013/14. These numbers are going to be reviewed annually, so it’s no great surprise that they will shift from 6 April 2013. What is striking, though, is that the change will fall right in the peak period of employer staging dates for auto-enrolment across the UK.
Around five hundred employers are due to run auto-enrolment processes for around five million workers during March and April 2013, amounting to nearly a third of all enrolments next year. These are large organisations – employers with payrolls ranging from 6,000 to 19,999 are covered in those two months – so auto-enrolment was already complex enough. The change could actually be even more fiddly to deal with for employers joining the regime in January 2013 (those with 30,000 to 49,999 workers on payroll). Here’s why:
The current plan, which is out for consultation, is that:
- the earnings trigger will rise from £8,105 to £9,205; and
- the qualifying earnings band will start at £5,720 instead of £5,564. The upper limit is up for grabs at the moment – it could be frozen at £42,475, reduce to £41,450 or increase to £42,971.
The immediate point for employers with staging dates in the first few months of the regime is that you will have to cater for the change in thresholds in your systems planning and in your communications.
If you are auto-enrolling into a money purchase scheme using one of the alternative quality tests which are based on your scheme’s definition of pensionable pay, or on total earnings, contributions won’t be directly affected by the change in the qualifying earnings band. It’s still relevant, however, for testing each jobholder’s eligibility for auto-enrolment; and if you plan to use the main Pensions Act 2008 quality test to calculate contributions or as an underpin to your certification process, the updated band could alter the amounts you deduct from pay.
Employers whose staging date is in February, March or April 2013 could choose to use a postponement period to go past the 6 April date. In that case, for most workers, they will assess eligibility according to the new thresholds. They would only test eligibility for, and process, any workers who opt in during that period.
An employer who is staged into the regime in January 2013, however, will have to start the auto-enrolment process based on the current earnings trigger (even if they use the maximum postponement period). That could mean that some workers have to be auto-enrolled from 1 April 2013 or earlier (based on a trigger of £8,105) though they would not be auto-enrolled if the staging date was 6 April 2013 or later and the £9,205 trigger applied. Two new joiners on the same rate of pay who have start dates a week apart could potentially fall on different sides of the line.
Where the qualifying earnings band is relevant for calculating contributions, employers auto-enrolling before the 6 April 2013 change need to plan for their systems to adjust to the new levels – and to communicate to workers who are new to pension saving that the amount of their contributions is going to change almost immediately. For example, if you run a weekly payroll, and you need to calculate contributions on Friday 5 April, your payroll systems will need to be changed to work on the basis of the new qualifying earnings band the following Friday and you will need to be able to explain to workers why a different amount has been deducted. Of course, some of those workers may still be in an opt-out period when the change happens, so you’ll also need to make sure the correct amounts are refunded for any who choose to opt out.
Take a look at our auto-enrolment website for more information and video briefings on other tricky areas: www.allenovery.com/autoenrolment.
This commentary is also featured in Professional Pensions 13 September 2012.
Helen Powell is a senior professional support lawyer at Allen & Overy LLP.