Summary and implications

Employers will soon have to start paying pension contributions for most of their employees aged between 22 and state pension age. Implementation of the auto enrolment new regime will start from 1 October 2012. The new legal requirements will involve changes for almost all UK employers, even those with long-established pension schemes – so it is important to start planning now.

All employers will need to:

  • Establish the date from which they will be required to comply. The larger the employer the earlier the date;  
  • Identify which employees will be subject to the new requirements;  
  • Choose the pension arrangement, or arrangements they will use to satisfy their statutory obligations. This may require establishing or nominating new arrangements or modifying existing ones.

What will I need to do?

You will have to automatically enrol most of your UK-based employees and contract workers into a qualifying pension scheme. This could be:  

  • The scheme you already use for your employees, but you may have to make some changes to the rules;  
  • A new scheme established or nominated by you; or  
  • The Government’s default scheme (NEST), but this has restrictions which may not be suitable for the needs of you and your employees.  

When will I have to do this?  

Implementation of the new regime will start from 1 October 2012. Employers will be staged into their new duties by size starting with the largest and ending with the smallest. Employers will be allocated their own “staging date”. Employer size will be determined using PAYE data and all employers should have been brought into the new regime by September 2016. The Pensions Regulator should notify you 12 months before your allocated staging date.  

You will have to repeat the automatic enrolment process every three years.

There will be many arrangements to put in place before your staging date, including making sure your chosen scheme is a qualifying scheme; identifying which employees are affected; providing information to them, to the pension scheme and to the Pensions Regulator; making the necessary payroll arrangements; and so on.

Can employees opt out?

Yes, but it will be illegal for you to offer them any inducement to opt out. This may cause problems for employers who offer flexible benefits like healthcare in return for lower pension contributions. Please note that an employee cannot opt out until after they have been auto-enrolled into a qualifying scheme but there are provisions allowing contributions to be held back until after the opt-out period has expired.

Will I have to pay contributions? I don't have to now.

Yes. This is a major change. Some employers currently use stakeholder schemes but do not contribute to them. This will no longer be possible.  

I run an employment agency: am I affected?

Yes: if you are the organisation responsible for paying the employees, then you will be responsible for enrolling them in a qualifying pension scheme.