There are new duties on employers to help more people save for their retirement. The Government has recognised that we are all living for longer these days!
In a nutshell, as an employer you MUST automatically enrol certain members of your workforce into a pension scheme and make a contribution towards the scheme on their behalf, register with the Pensions Regulation (the Regulator) and provide workers with certain information about the changes and how they will affect them.
When will the changes come into force?
The new employer duties will be introduced in stages starting on 1 October 2012 for larger employers and smaller employers will follow.
The Department for Work and Pensions (DWP) has announced that the date for small businesses to enrol employees into a qualifying scheme has been delayed. This will be extended from April 2014 to May 2015.
What is automatic enrolment?
Workers known as ‘eligible jobholders’ will need to be automatically enrolled into a pension scheme that meets a number of conditions based on the level of contributions paid or the benefits that they receive.
Eligible jobholders may choose to ‘opt-out’ of the scheme, but only after they have been automatically enrolled by you. There is an opt-out period of 1 month, where any deductions made from their salary will be refunded. Equally, the employer contributions will be refunded by the pension scheme. Workers must do this using an ‘opt-out notice’ which the pension provider will make available.
Eligible jobholders are those that earn more than the minimum earnings threshold, are aged between 22 and state pension age and work, or ordinarily work, in the UK.
Opt-in or joining requests
Certain workers have a right to ‘opt in’ to an automatic enrolment scheme and the employer is required to arrange this and make employer contributions. Other workers have a right to ‘join’ any scheme but there is no requirement on the employer to make employer contributions in respect of these workers.
Each employer will be given a date from which the changes will have to be in place. This is known as a staging date. The first staging date will be in October 2012 and others will continue through to 2016. Your staging date will be broadly based on the number of workers you have in your PAYE scheme. The Regulator will contact you 6-12 months before your staging date. Employers can choose to bring their staging date forward, provided the Regulator is informed. You can check your provisional staging date at www.tpr.gov.uk/staging
What contributions will I have to make?
You must contribute at least 1 per cent of your worker’s earnings (rising to 3 per cent), although you can choose to pay more if you wish. Contributions will be based on the band of gross annual earnings. There are different rules depending on the pension scheme.
Existing pension schemes
If you already have a pension scheme for your workers, you will need to check if it is a ‘qualifying scheme’. Many occupational and group personal pension schemes will qualify. To be a qualifying scheme, minimum contributions must be made, or it must provide a minimum rate at which benefits will build up. If your scheme does not qualify, you may be able to change the scheme rules or amend the terms of the policy so that you will be able to use it by your staging date. You can check if your existing scheme qualifies at www.tpr.gov.uk/qualifyingscheme. To confirm that an existing scheme is suitable for automatic enrolment employers can use a process called ‘certification’.
No existing pension scheme
If you do not have an existing pension scheme you may wish to take advice on how to find a suitable pension provider. The Financial Services Authority, The Pensions Advisory Service, Business Link, IFA Promotion and the National Employment Savings Trust (NEST) can provide further details on different pension schemes.
• provide a qualifying scheme for your workers;
• automatically enrol all eligible jobholders into the scheme;
• pay employer contributions for eligible jobholders to the scheme;
• tell all eligible jobholders that they have been automatically enroled and they have the right to opt out;
• register with the Regulator and provide details of the qualifying scheme and the number of people that you have automatically enrolled (this will be online); and
• keep records for a minimum of 6 years.
Employers must not:
• impose barriers, such as probationary periods or age limits for members;
• require staff to make an active choice to join or take other action, e.g. having to sign a form or provide extra information to the scheme themselves, either prior to joining or to retain active membership of the scheme;
• encourage workers to opt out of the qualifying pension scheme;
• have recruitment practices in place that will benefit job applicants who indicate that they are prepared to opt out; or
• treat workers unfairly or put them at a disadvantage because of automatic enrollment.