Auto Enrolment and Directors

We have done a lot of work over the last 6 months in respect of Auto Enrolment (also known as Workplace Pensions), predominantly in (a) how it affects our clients, and (b) what service we can provide to our clients.  Whilst Auto Enrolment started in 2012, the initial focus was on large employers.  However, it will start to affect employers with less than 50 employees from this month:

• Large employers (with 250 or more workers) will have to start automatically enrolling their workers from October 2012 to February 2014 (some employers may choose to start earlier)
• Medium employers (50 – 249 workers) will have to start automatically enrolling their workers from April 2014 to April 2015
• Small employers (49 workers or less) will have to start automatically enrolling their workers from June 2015 to April 2017
• New employers (established after April 2012) will have to start automatically enrolling theirworkers from May 2017 to February 2018

One area which has attracted a lot of attention, particularly as the focus shifts from large employers to small employers, is the situation regarding small limited companies where the only people working for the company are directors.

The key concept behind Auto Enrolment, as the name suggests, is that employers MUST set up a pension scheme for their employees who qualify, and MUST automatically enrol those employees into the scheme.  If the employees then decide they wish to opt out, that is their decision, not the companies.  Indeed, it is illegal to try and persuade qualifying employees from not wishing to join a scheme.

However, this is a bit ridiculous where the only employee is a director.  In those circumstances, if a director wants his company to pay into a pension scheme for him, then he would simply set up a pension scheme.  If he doesn’t, then it would be very onerous to set up a scheme which isn’t required.

Therefore, the Pensions Regulator has created a simplified procedure if:

• You are a sole director with no other staff, or
• Your company has a number of directors, none of whom has an employment contract, or
• Your company has a number of directors, only one of whom has an employment contract.

Essentially, if the company considers that it does not have any employees who could potentially ask for a pension under Auto Enrolment, and it wishes to avoid the scenario of setting up a pension which will not be used, it can simply send an email to the Pensions Regulator confirming that it doesn’t qualify.  Of course, if the company’s circumstances change in the future, it will have to let the Pensions Regulator know.

Further details, including an email template to send to the Pensions Regulator, can be found here.  If you need help, please get in touch.