One of the most radical changes to the UK pensions regime in living memory is underway.
Under the new automatic enrolment legislationan employer is required to enrol all ‘eligible jobholders’ (and ‘non-eligible jobholders’ who opt-in) into an automatic enrolment scheme and pay minimum employer contributions or provide a minimum level of benefits.
Employers must be prepared to comply with these new legal requirements from their ‘staging date’. An employer’s staging date is based on the number of people in its PAYE payroll scheme on 1 April 2012. An employer can confirm its staging date here.
Employers are to automatically enrol workers who are;
• not already in a qualifying workplace pension scheme
• aged 22 or over
• under State Pension age
• earning more than £8,105 a year (this figure may change each April) and
• working, or usually work, in the UK.
Employers are also required;
to provide information to workers about their new rights,
to re-enrol eligible jobholders who opt-out approximately every3 years,
not to take any measures that the ‘sole or main purpose’ of the particular action is to persuade or cause an individual to opt out of or leave their pension scheme, without becoming an active member of another scheme.
register with the Pensions Regulator soon after the staging date.
The pension regulator has provided a useful tool to help employers work out who is and who is not included. This can be found here.
Planning: Here are a few steps you might wish to consider:
How much will it cost employers?
Broadly speaking the minimum employer contribution is 3% (see the employer minimum employer contribution here
Find out when the new automatic enrolment duties will apply
Employers must be prepared to comply with these new legal requirements from their ‘staging date’ (based on number of employees). An employer can confirm its staging date on the here.
Note those smaller firms (with less than 50 employees) have staging dates determined by their PAYE reference numbers.
You can bring forward staging dates, but these too are controlled, so check the pension website if you want an earlier date.
Identify the workers that will be covered
Employers need to assess which eligibility category each of their existing workers falls into, in order to determine which of their workers will be covered by the new automatic enrolment requirements and to estimate the likely increase in the number of workers participating in their pension scheme and the cost implications of this.
Lawyers at firm Eversheds suggest “things can get complicated with agency staff, secondees, consultants and self-employed contractors, all of whom may count as “workers” for the purposes of the legislation.” If you are unsure, seek advice!
Update payroll and admin systems
Employer’s HR and wages systems need to be updated to assess worker’s eligibility for automatic enrolment and to ensure that the correct level of contributions are paid at the right times.
Employers also need to update employee contracts (written terms/staff handboooks etc) and induction processes to encompass
Decide which scheme to use
Does your current scheme comply or do you need to change it?
Employers also need to decide whether they will use the same scheme for all staff or have different schemes for different members of their workforce.
Whichever option you choose, you will need to have the scheme reviewed to ensure that it complies with the qualifying criteria.
Consider the cost implications
To offset costs, employers may wish to make changes to the pensions and other benefits that they offer to their staff. Not as straightforward as one might think, but remember you may be able to negotiate a trade off between one benefit for another
Employers may also want to introduce, or extend, salary sacrifice arrangements in connection with the payment of members’ pension contributions, to take advantage of the national insurance savings that result from this.
Early planning is essential, espcially where negotiations are reuqied.
Prepare an effective communication strategy
Issuing effective and timely communications is essential so that workers understand these changes and what it will mean for them.
Employers may find the DWP’s language guide helpful when preparing automatic enrolment communications.
Appoint somebody to oversee compliance
Failure to comply with the automatic enrolment requirements could lead to enforcement action (which may include a significant fine) being taken by the Pensions Regulator. Therefore, it is important that someone within an organisation is appointed to “own” the issue and oversee compliance.
(Note there are financial and custodial penalties attached to this legislation)
‘There may be circumstances that are not covered in the tools provided in these links that could have an impact on the decisions or changes you’re required to make. For these reasons, you are encouraged to seek additional guidance or professional advice to ensure that you meet your legal obligations.’ – and this advice is from the pensions regulator who provide the tools!