Howes Percival is warning employers to prepare for the introduction of pensions auto-enrolment which will be rolled out from 1 October 2012. The automatic enrolment scheme, which is one of the biggest changes to the pension system in the UK, will be phased in over a five and a half year period.
Staging dates, based on the number of people in an organisation’s PAYE scheme on 1 April 2012, have been published by the Government. From October, only the very largest organisations will have to enrol eligible workers into a qualifying scheme and make minimum contributions. The scheme will then be rolled out across medium-sized and smaller employers with all remaining employers being required to offer an automatic enrolment scheme by various dates in 2017.
Howes Percival’s employment law expert, Nicola Butterworth, commented, “While the new regulations will only initially apply to the very largest organisations, all employers need to be aware of their staging date and allow plenty of time to get their auto-enrolment pension systems up and running."
“Employers who currently offer a staff pension scheme will need to establish whether their existing arrangements meet the new requirements or whether any changes are necessary. In addition, any variation to an existing scheme may require agreement from staff. Employers who do not currently offer a pension scheme must make arrangements by the deadlines set by the Pensions Regulator. Employers must register with the Pensions Regulator to demonstrate their compliance with the new rules and ensure that they have systems in place for keeping records of enrolled workers."
“Employers are also obliged to provide written information on automatic pension enrolment to their workforce and explain how they will be affected by it. While the new legislation provides for an opt-out by employees, it will be unlawful for employers to encourage existing or prospective staff to do so.”
The Pensions Regulator has identified seven steps employers need to take in order to prepare for auto-enrolment:
- Know your 'staging date'
This is the date the employer will have to start automatically enrolling its workforce and is based on the size of its PAYE scheme. The dates are listed on the Pensions Regulator's website www.thepensionsregulator.gov.uk
- Assess your workforce
Employers will have to automatically enrol its 'eligible job holders' who are defined as being aged between 22 and state pension age, working in the UK and earning over £8,105 (for the 2012-2013 tax year). However, other workers can also join the scheme.
- Review pension arrangements
Employers who have an existing pension scheme may be able to enrol eligible job holders into the scheme provided it meets certain criteria to be a 'qualifying' scheme. (See Pensions Regulator's website for more information on this). If the existing scheme does not qualify, employers should explore whether the scheme's rules or terms can be changed. Remember though that any variation of a pension scheme without the employee's agreement could amount to a breach of the employment contract. It is, therefore, advisable to consult with employees before implementing any changes and to seek their express agreement to them. Employers who do not have an existing pension scheme will need to choose a qualifying scheme and one option is the National Employment Savings Trust (NEST). However, appropriate professional advice should be sought.
- Communicate changes to the workers
Employers have an obligation to inform all their workers in writing about auto-enrolment and how they will be affected by it.
- Automatically enrol your eligible job holders
Employers will have to follow a process to make eligible job holders members of an automatic enrolment pension scheme. More information about what this involves is on the Pensions Regulator's website.
- Register with the Pensions Regulator and keep records
Employers must inform the Pensions Regulator how they have complied with their duty to automatically enrol their workers. Records about enrolled workers will also need to be kept by employers. Remember employees who are not currently eligible because their earnings are too low or they are too young, must be monitored by employers so that they can be automatically enrolled should their earnings increase or they reach the eligible age.
- Contribute to your worker's pension
Employers must contribute a minimum amount to their chosen pension. Initially this will be 1% but will increase to 3% over a 6 year phasing-in period (depending on the pension scheme).
Employers should also be aware that regardless of their staging date for auto-enrolment it is already unlawful to:
- Ask questions or make statements during the recruitment process that a job applicant's success depends on opting-out of an auto-enrolment pension scheme.
- Offer workers a one-off payment, higher salary, promotion or other 'inducement' in return for opting-out or leaving an auto-enrolment pension scheme.
- Subject an employee to a detriment (e.g. denying promotion), or dismissing an employee because they have not opted out of an auto-enrolment pension scheme.