On 1st October 2012, new pension laws came into force which enforced new duties on employers in relation to employee pension provisions.
Employers are now obliged to:
- enrol most of their workforce into a pension scheme; and
- make employer pension contributions.
This affects all employers in the UK, regardless of the number of individuals they employ and there are a number of fundamental issues to consider. The new rules are not just restricted to employees in the strict sense of the word as anyone who is classed as a ‘worker’ for National Minimum Wage purposes will be included in the new pension regime.
Do you know your staging date and how to plan for the legislation?
Each employer will be given a ‘staging date’, determined by how many employees they had at 1 April 2012. These fell within the following periods:
||Staging start date
||Staging end date
|120,000 or more
||1 October 2012
|250 – 119,999
||1 November 2012
||1 February 2014
|50 – 249 employees
||1 April 2014
||1 April 2015
|Less than 50 employees
||1 June 2015
||1 April 2017
|New employers from 1 April 2012
||1 May 2017
The above table provides only a summary and specific staging dates can be found at The Pensions Regulator website: http://www.thepensionsregulator.gov.uk/employers/staging-date-timeline.aspx
Employers must find out their staging date so that they can prepare well ahead to ensure they comply with the legislation fully, right from the start.
Is your current pension scheme ‘qualifying’?
Contributions will have to be paid to a qualifying pension scheme.
- This could be the employer’s existing pension scheme provided certain criteria are met. The rules determining whether a pension scheme qualifies under the new legislation are complex and ideally employers should take professional advice.
- If an employer does not have a qualifying scheme, or has employees who are not members of it, they will need to make arrangements for employees to be enrolled into an automatic enrolment scheme. There are choices in schemes available to employers ranging from the rigid but low cost National Employment Savings Trust (NEST) scheme, to a bespoke employer group pension plan, and again employers should take professional advice in identifying which is most suitable.
Have you assessed your workforce?
There are three categories of employees, determined by their age and level of earnings. The legislation contains its own definition of ‘earnings’ which includes not only an employee’s basic salary, but also other remuneration such as commission, bonuses and overtime, which can make correct categorisation of employees complex, particularly where earnings fluctuate.
An employee’s pension rights will be determined by the category into which they fall, so it is important that employers correctly analyse their workforce into:
a) Eligible employees who must be automatically enrolled into a pension scheme and benefit from employer contributions.
b) Non-eligible employees who have a right to opt in to the pension scheme if they wish to join, in which case the employer must also make contributions.
c) Entitled employees who have a right to join the pension scheme if they wish, but the employer is under no statutory obligation to contribute.
How do you intend to deal with the complexities of auto-enrolment?
Categorising the workforce is one of many administrative duties placed on employers by the new pension regulations. Others include:
- An obligation to keep employees informed of their entitlements to employer pension provision.
- Employees must be monitored on an on-going basis for changes in category, ensuring that as an employee’s age or qualifying earnings change, their pension entitlements are met at all times.
- Eligible employees will have the opportunity to opt out if they wish, but the employer must re-enrol them again every three years.
Employers should not underestimate the size of the administrative task they face to ensure compliance at all times.
How will you balance the cost implication and meet the requirements of the legislation?
Costs will include:
- compulsory minimum contributions, increasing through time to 3% from the employer and 5% from the employee (including 1% in tax relief).
- implementing procedures to deal with the complex administrative and compliance requirements.
- harsh penalties imposed by The Pensions Regulator if the employer is not compliant with the legislation.
How we can help
The auto enrolment legislation is a challenge for every employer and many still seem unaware of their obligations. As part of our integrated payroll and pensions administration service we can arrange all the help needed along the way to becoming fully compliant with these regulations, including:
- Assessment of your workforce
- Managing the new pension contributions through the payroll
- Procedures for managing opt-ins and opt-outs
- Maintaining adequate records
- Ongoing monitoring of the workforce
For further guidance regarding your auto enrolment responsibilities please contact our Payroll Manager Melanie Dunford on 01420 83700 or at firstname.lastname@example.org