Auto enrolment is one of the government’s most significant changes to general pension’s provision, and has or will affect every employer and employee in the UK.
While the changes are unlikely to have any significant impact on GPs in a personal capacity, the practice will be affected by the changes. The changes for small employers are being phased in, but many organisations with fewer than 30 employees will need to ensure that they are ready to meet their obligations between 2015 and 2017.
Employers will generally be informed of their ‘staging date’ by The Pension’s Regulator before their scheme needs to be implemented.
GPs and practice managers will need to ensure that they prepare for their staging date in good time and that they continue to monitor their employees so as to ensure they do not fall foul of their legal responsibilities.
There is a very handy and easy to use step-by-step guide to automatic enrolment on the pension’s regulator website.
What is auto enrolment?
Auto enrolment requires all employers to automatically enrol certain categories of workers into a work place pension. Both the employer and the employee must contribute to this pension and the employee will get an additional payment from the government in the form of tax relief.
Employers must set up their schemes and start to automatically enrol employees from their ‘staging dates’, with the largest employers having already started the auto enrolment process in October 2012.
Not all workers are automatically enrolled. Workers are split into three different categories:
- Eligible job holders – Must be auto-enrolled. Those employees that are aged between 22 and the state pension age and earn more than the ‘trigger’ amount each year (this amount will change, but is currently over £833 per month for the 2015/16 tax year).
- Non eligible job holders – Can opt into auto-enrolment. Those aged between 16 and 75 earning between £486 and up to £833 per month (for 2015/16).
- Entitled workers – Can ask to join the scheme. Those aged between 16 and 75 who earn less than the lower contribution limit of £486 per month.
What do employers need to do?
The first thing employers need to do is to know their staging date, then assess their workforce, review their pension arrangements and communicate the changes to all their workers.
From their staging date practices will need to automatically enrol all eligible job holders that are not already in a qualifying pension scheme.
Employers will need to 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.
How it works in practice
‘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 also of their right to opt out. Individuals cannot request that they are not ‘auto enrolled’, but they do have one calendar month to opt out after having been automatically enrolled.
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 that 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.
‘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 then 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. 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).
Additionally, employers will need to continue to monitor their workers to ensure that they continue to comply with the auto enrolment requirements, for example, if non eligible job holders earnings increase so that they become an eligible job holder).
Impact on practices
For GP practices the position should be relatively simple, as employees will usually all be members of the NHSPS.
Those members of staff that have chosen not to join the NHSPS and fall within the category of ‘eligible job holders’ will need to be auto enrolled into the NHSPS from the GP practice’s staging date. Should they not wish to remain in the scheme then 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 NHSPS 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 and the government have set up the National Employment Savings Trust, which is available to all employers that wish to use it. However, employers are free to use an alternative qualifying pension schemes should they wish to do so.
Impact on GPs' pensions
Most GPs will be members of the NHSPS, unless they have opted out or returned to work after taking their NHS pension benefits (for example having taken 24-hour retirement). Auto enrolment only applies to employees and therefore GP partners and locums 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 hospital trust is legally required to ‘auto enrol’ the GP into an alternative qualifying pension scheme 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’ (FP) to protect their pensions lifetime allowance (LTA) at a higher level.
It is therefore imperative that GPs who are in this position ensure that 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.
- Stephen Caps is a director of Ramsay Brown Financial Services
|Auto enrolment: Key points|