In the UK today, millions of people are failing to save enough to have the income they would like in retirement. Life expectancy is increasing but people are saving less into pensions. To meet this challenge, the Pensions Act 2008 laid the foundations for a fundamental reform of workplace pensions requiring every employer to automatically enrol their workers into a qualifying pension scheme, if they are not already in one, and contribute to that pension. Between 2012 and 2017 all employers will have to offer a workplace pension.
The start date for the rollout of the changes was October 2012 and at that time only employers with 120,000 workers or more were affected. For those with a more modest workforce the start date varies, for example those with less than 500 workers the date is 1 January 2014 and for those with less than 50 workers the earliest start date is 1 August 2014.
Who is eligible?
Workers eligible for automatic enrolment will be:
- those who aren’t already active members of a qualifying scheme
- are aged between 22 years and the State Pension age and
- earn over £8,105 gross a year.
The qualifying scheme may be the existing employer pension scheme if it meets certain conditions, or if an employer does not have a qualifying scheme they will have to set one up or use a NEST pension scheme.
What do employers have to do?
You will have to automatically enrol your eligible workers into a qualifying pension scheme and make an employer contribution towards it. The main things you must do are:
- 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 enrolled and they have the right to
opt out - register with The Pensions Regulator and give them details of your qualifying scheme and the number of people that you have automatically enrolled.
You must not:
- encourage your workers to opt out of the qualifying pension scheme
- have recruitment practices that will benefit job applicants who indicate they are prepared to opt out or
- treat a worker unfairly or put them at a disadvantage because of automatic enrolment.
How much will employers have to pay?
From 2012 the legal minimum is 2 per cent of a worker’s qualifying earnings. Of this the employer must pay at least 1 per cent. The legal minimum requirement will rise gradually to 5 per cent by October 2017 (of which the employer must pay 2 per cent) and 8 per cent from October 2018 onwards (of which the employer would be liable for 3 per cent).
Qualifying earnings is the band of gross annual earnings on which contributions are calculated, currently between £5,564 and £42,475 a year in 2012/13 terms. This includes a worker’s salary, wages, overtime, bonuses and commission, as well as statutory sick, maternity, paternity or adoption pay. Contribution levels will be phased in over a period of time.
|
Employee Pays(less tax relief) |
Employer pays |
|
| Before October 2016 |
1% |
1% |
| October 2016 – October 2017 |
3% |
3% |
| From October 2017 |
5% |
3% |
What should you do if you have an existing scheme?
Even if you already provide a pension scheme for your workers, you will need to check if it is a qualifying scheme. It will need to meet certain requirements depending on the type of scheme you have. It must also be appropriate for automatic enrolment. You can find out more by visiting The Pension Regulator’s website at www.tpr.gov.uk and following the links to ‘pensions reform’.
How do you know if your existing scheme is a qualifying scheme?
Many occupational and group personal pension schemes will qualify. To be a qualifying scheme, it needs to meet certain requirements. To be a qualifying scheme, minimum contributions must be made or it must provide a minimum rate at which benefits will build up. Even if it doesn’t qualify at the moment, 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 the time your staging date comes around.
Please contact us if you need any help.