Pensions auto-enrolment: staging and phasing dates

Occupational Pensions magazine looks at the "staging" or implementation dates for employers of different sizes and how compulsory minimum contributions will be phased in.

On this page:
Establishing the staging date
Box 1: Example - establishing the staging date where there is more than one PAYE scheme
Bring staging date forward
Postponing auto-enrolment
Transitional period for DB and hybrid schemes
Phasing in contributions
Table 1: Summary of staging dates
Table 2: Contribution phasing for DC schemes - minimum rates.

People's minds have been focused on 1 October 2012 as the start date for pensions auto-enrolment. However, this date is just the "beginning of the start" as it only applies to the very largest employers, those with a workforce of 120,000 or more. Auto-enrolment is being phased in gradually, and while larger employers (those with a workforce of 4,000 or more) will need to have everything in place by mid-2013, some very small employers have staging dates as late as April 2017.

An employer's staging date will not necessarily be the date on which it has to start automatically enrolling its employees. The Regulations provide for an optional waiting period (postponement), which can be applied to some or all eligible workers. There are also provisions that allow employers with a defined-benefit (DB) or hybrid pension scheme to apply a transitional period of up to five years, during which auto-enrolment is delayed for certain employees. On the other hand, employers that do not wish to delay auto-enrolment may opt to bring their staging date forward.

In short, while every employer has a staging date, this is not necessarily the day on which they will need to start signing their employees up to their pension scheme. The minimum level of contribution to be paid to defined-contribution (DC) schemes is also being phased in, in three tranches - the timetable for which applies equally to employers of all sizes, irrespective of their staging date.

This guidance article provides an overview of the staging and phasing requirements to help employers plan for auto-enrolment.

Establishing the staging date

Under the auto-enrolment requirements, every employer has a staging date from when they must start automatically enrolling employees into a qualifying pension scheme. This date is based on the total number of people in each employer's PAYE scheme on 1 April 2012, including those who are already members of a pension arrangement and any workers who will not be eligible for auto-enrolment. An employer's staging date will not be affected by changes in the size of their PAYE scheme subsequent to 1 April 2012, even if that change is significant and would take them into a different size bracket.

Where an employer operates more than one PAYE scheme, its staging date will be based on the number of people in the largest scheme (ie it will be the earliest date; see the example in the accompanying box). This staging date will apply to the whole workforce, including those in smaller PAYE schemes. For companies with complex organisational structures, it will be necessary to establish where contracts of employment are issued from. For example, in some groups, all contracts of employment will be made direct with the parent or holding company, no matter for which organisation within the group an employee works. In this case, the staging date will be based on the largest PAYE scheme used by the parent company. Where each company in a group contracts workers directly, staging dates will relate to the largest payroll that employer uses. Table 1 provides an overview of staging dates for different-sized employers.

The Pensions Regulator is writing to all employers twice, once 12 months before their staging date and once three months before, to make sure they are aware of when auto-enrolment applies to their workforce. However, there are a number of circumstances under which the original staging date may be changed. For example, there are special provisions for "small employers", defined as employers with fewer than 50 workers on 1 April 2012, who are part of a PAYE scheme that has more than 50 workers. These organisations will have an earlier staging date than they would have had if based on the number of people they actually employ. They may, however, choose to move their staging date to a prescribed later date. Small employers wishing to take advantage of this option can establish their new staging date using tables on the regulator's website (PDF format, 376K) (external website). It is not necessary to notify the regulator of such a change, although failing to do so will mean that its reminder letters will arrive at the wrong time.

The regulator's website has an interactive tool (PDF format, 376K) (external website) to allow employers to find out their staging date. This shows the "indicative" staging date for employers with 250 or more employees. For smaller organisations, there is an online timeline.

Bring staging date forward

To bring their staging date forward, employers will need to notify the regulator, in writing, at least one calendar month before the new staging date they have chosen, providing evidence that they have the necessary arrangements in place. A list of available early staging dates is available on the regulator's website (PDF format, 376K) (external website), together with details of the information that must be provided.

Postponing auto-enrolment

Once an employer has reached its staging date, it will not necessarily have to enrol all its eligible workers from day one. Rather, it can choose to operate a waiting period of up to three months. This waiting period can be applied to all employees, to a group of employees or to certain individuals. The postponement period can start from the staging date, the date an employee becomes an eligible worker or the first day of employment for new employees.

Reasons why an employer might choose to operate a waiting period include:

• to align joining procedures with existing scheme rules;
• to align auto-enrolment procedures with HR and payroll cycles;
• to minimise the possibility of having to enrol large numbers of employees who then leave within three months, where there is a high turnover of employees;
• where assessing an employee on a particular date might result in their being ineligible for auto-enrolment (for example if they join the company partway through a month), whereas they would be eligible if assessed on a later date; and
• where assessing an employee on a particular date might result in their being eligible (for example if there has been a spike in their earnings), whereas they would be ineligible if assessed on a later date.

In all cases, employees must be given written notice of the postponement by no later than the day after the date on which they first become eligible to be enrolled. Employees retain the right to opt into membership during the postponement period and, if they do so, their employer is required to pay contributions at the appropriate rate.

Transitional period for DB and hybrid schemes

Employers with a DB or hybrid scheme have the additional flexibility of being able to apply a "transitional period" to employees who meet certain conditions. Such employees must have been employed "for a continuous period" before the employer's staging date and must have been entitled to join their employer's pension scheme on that date. Effectively, this means that employers can put off having to enrol those employees who had previously been offered membership of their pension scheme, but had chosen not to join. This provision only applies where the DB or hybrid scheme is a qualifying scheme for auto-enrolment and the employees covered by the transitional period continued to be entitled to join that scheme, despite having chosen not to, up until their first enrolment date. The transitional period ends on 30 September 2017, after which all eligible employees must be automatically enrolled into the DB or hybrid scheme or an alternative qualifying DC scheme.

During the transitional period, the employer must monitor employees to make sure that the conditions for the deferment continue to be met. Any employees who cease to meet these conditions must be assessed immediately for eligibility and automatically enrolled if appropriate. This is most likely to occur if the employer closes its existing DB or hybrid pension scheme or withdraws the employees' right to join that scheme.

Employers must give written notice of their intention to defer auto-enrolment to all affected employees. This must be issued within one month of the first enrolment date and it must tell employees:

• that they have the right to request to be automatically enrolled into a qualifying scheme to which the employer will contribute; and
• how they should go about making that request.

While employees can choose to join at any time, employers are not allowed to automatically enrol any affected employees during the transitional period.

Phasing in contributions

The Automatic Enrolment Regulations specify minimum overall contribution rates that an employer must pay into their workers' pensions. These apply to all DC arrangements and some hybrid schemes, with different overall rates for qualifying schemes and those schemes that have self-certified as qualifying.

Minimum contributions will be phased in between the staging date and October 2018 (see table 2). From October 2012, the minimum total contribution for qualifying schemes (ie, those not self-certifying) will be 2%, with the employer contributing at least 1%. This total includes the tax relief on the employee's contribution - so, for example, in the first phase the amount deducted from the employee's salary would be 0.8% of qualifying earnings. From October 2018 onwards, the minimum contribution will be 8% of qualifying earnings with the employer paying at least 3%, with 4% from the member and 1% tax relief.

Minimum employer and total contributions for self-certified schemes vary, depending on how pensionable salary is defined. These schemes are divided into three "tiers", as follows:

• Tier 1 - pensionable pay must be at least equal to basic pay.
• Tier 2 - pensionable pay must be at least equal to basic pay. Basic pay must be at least 85% of total earnings for all relevant jobholders taken in aggregate.
• Tier 3 - pensionable pay must be equal to total earnings.

Both employers and members can contribute at a higher rate than the minimum.

The phasing timetable applies to all DC schemes irrespective of their staging date. However, employers could choose to introduce the full level of contributions at the outset, with no phasing, or could phase in at a faster rate. There is no phasing for DB schemes, nor for hybrid schemes, that choose to automatically enrol jobholders at the end of the transitional period.

The regulator has an interactive contribuntions calculator (PDF format, 376K) (external website) to help employers gauge what their minimum contributions might be.