Auto enrolment is one of the government’s most significant changes to general pensions provision and will potentially affect every employer and employee in the UK.
While the changes are unlikely to have any significant impact on most GPs in a personal capacity, GP practices may be impacted by the changes. The changes for small employers (those with 50-or-fewer employees), will not need to be implemented until at least 2015, but it is important employers are aware of their responsibilities and make sure the necessary processes are put in place, so that they can fulfil their legal duties.
Auto enrolment recap
Auto enrolment requires all employers who have employees (‘workers’ in the legal parlance), to automatically enrol certain categories of workers into a workplace pension. Both the employer and the employee must contribute to this pension, and the employee will receive an additional payment from the government in the form of tax relief.
Employers must set up their schemes and start to enrol employees automatically from their ‘staging dates’, with the largest employers having already started the auto enrolment process in October 2012.
Not all workers are automatically enrolled, and workers are split into three different categories as follows:
- Eligible job holders: Those employees who are aged between 22 and State Pension Age and earn more than the ‘trigger’ amount each year, (this amount will change, but is £9,440 for the 2013/14 tax year).
- Non-eligible job holders: Those aged between 16 and 75 earning in excess of a minimum amount (£5,668 for the 2013/14 tax year), but less than the trigger amount of £9,440.
- Entitled workers: Those aged between 16 and 75 who earn less than the lower contribution limit of £5,668.
The first actions employers need to take is to ensure they know their staging date; assess their workforce; review their pension arrangements; and communicate changes to all their workers.Employers will then need to enrol automatically all eligible job holders who are not already in a qualifying pension scheme.
Employers must contribute a minimum of 3% to the scheme, with employees contributing 4% and the government contributing an additional 1% through tax relief. Minimum contribution levels are being phased in.
‘Non eligible job holders’ are not automatically enrolled; however, they must be enrolled if they ask to opt into the scheme. Should they opt in, employers are required to contribute towards their pension scheme.
‘Entitled workers’ are not required to be enrolled, however should they wish to join the scheme, then the employer will need to make a scheme available, although the employer is not required to contribute.
As mentioned above, auto enrolment only applies to those workers not already members of a qualifying pension scheme (such as the NHS Pension Scheme (NHSPS)).
‘Eligible job holders’ will need to be auto enrolled on their first day of employment and must be provided with the appropriate information about the scheme and of their right to opt out. It is important to note that individuals cannot request not to be ‘auto enrolled’, but they do have one calendar month to opt out after having been enrolled automatically.
If an individual does opt out within the prescribed time period, they are treated as not having joined the scheme. However, the employer will need to auto enrol the individual again after a period of three years. Individuals who leave the scheme after the one month opt out period, will be treated as ‘deferred members’ of the scheme and will not have their contributions refunded.
Additionally, employers will need to continue to monitor their workers to ensure they continue to comply with the auto enrolment requirements, as employees move between the different categories; for example, if non-eligible job holders’ earnings increase so that they become an eligible job holder.
In addition, eligible job holders who have opted out must be re- auto enrolled every three years.
Impact on GP practices
For GP practices, the position should, theoretically, be relatively simple, as employees should all be members of the NHS pension scheme (NHSPS). Those members of staff who have chosen not to join the NHSPS and fall within the category of ‘eligible job holders’ will need to be auto enrolled from the GP practices staging date. Should they not wish to remain in the scheme, they will need to opt out within the prescribed time period.
The exception to this is where members are unable to join the NHSPS because they have already taken NHSP benefits and have returned to work before normal state pension age.
These members will need to be auto enrolled into an alternative qualifying pension scheme (AQPS), and the government have set up the National Employment Savings Trust (NEST) which is an AQPS that is available to all employers who wish to use it. However, employers are free to use an alternative AQPS should they wish to do so.
Impact on GPs
Most GPs will be members of the NHSPS unless they have opted out or returned to work after taking their NHSP benefits (for example having taken 24 hour retirement). In any event, auto enrolment only applies to employees and, therefore, GP partners will not be automatically enrolled as they are considered self-employed contractors.
However, there are circumstances in which a GP may be ‘automatically enrolled’. This is where, in addition to being a GP principal, a GP also has an employed post, for example, in a hospital (officer post). In this circumstance, the employer (i.e the hospital trust) is legally required to auto enrol the GP into an AQPS, in respect of that officer post.
It will be the case that a number of GPs with officer posts that have taken 24-hour retirement will have also applied for ‘fixed protection’ to protect their pensions lifetime allowance (LTA) at a higher level.
It is therefore imperative that GPs who are in this position ensure they opt out within the one month prescribed time period, as if they do not do so, they will be classified as ‘deferred’ members, and their ‘fixed protection’ will be lost. This can have significant detrimental tax consequences for the individual.
Key points to bear in mind
- Auto enrolment will require employers to identify, communicate with and auto enrol ‘eligible job holders’ who are not already members of a qualifying work place pension scheme, into a qualifying work place pension scheme on their staging date.
- For most practice staff the qualifying pension scheme will be the NHS pension scheme (NHSPS).
- Care will need to be taken to ensure that those employees that are unable to be ‘auto enrolled’ into the NHSPS are auto enrolled into an alternative qualifying pension scheme.
- GPs who also hold an employed officer post and have already taken their NHSP benefits (as a result of 24-hour retirement, for example) and have also taken ‘fixed protection’ to protect their higher pension lifetime allowance should ensure that they opt out within the prescribed timeframe if they are ‘auto enrolled’ by their employer.
- Stephen Caps is a chartered financial planner at Ramsay Brown Financial Services Limited