Auto-enrolment will mean all employers in the UK must automatically enrol eligible jobholders in a pension scheme from a date after 1 October 2012 under a five-and-a-half-year staging process. Employers must enrol eligible jobholders in a qualifying pension scheme or the National Employment Savings Trust (NEST), unless they are already members of a qualifying scheme.
Larger employers are affected before smaller employers and new businesses. From the date an employer becomes subject to the new duties – referred to as its “staging date” – the employer must automatically enrol its eligible jobholders in an automatic enrolment scheme, unless a jobholder is already an active member of the employer’s qualifying scheme. An employer can use an occupational or personal scheme as an automatic enrolment scheme if it meets certain quality requirements or else enrol jobholders in, the central government-established scheme.
Broadly, employers with between 50 and 249 workers have been assigned revised staging dates running from 1 April 2014 to 1 April 2015. Employers with fewer than 50 workers have been given staging dates between 1 June 2015 and 1 April 2017.
When checking whether a scheme can be used for auto-enrolment, different quality tests apply. If an employer auto-enrols its eligible jobholders in a qualifying scheme, it must pay contributions of 3% of band earnings each year, although this requirement will be phased in over five years. For 2012/13, the qualifying earnings band runs from £5,564 to £42,475. Jobholders will be required to contribute 5% of band earnings, again to be phased in over five years.
Jobholders who have been automatically enrolled will have a statutory right to opt out of whichever scheme they have joined, within prescribed time limits. Jobholders who have opted out will be automatically re-enrolled every three years during a six-month window. Employers will be required to provide information to jobholders (and other workers) about auto-enrolment, including details of the pension scheme that they are using and the right to opt out.
Employers will not be allowed to induce jobholders to opt out of scheme membership or make job offers conditional on opting out. These employment protection measures came into force on 30 June 2012 and apply to an employer even before it has reached its staging date.
The Pensions Regulator will police employer compliance. Employers that breach the new duties will face compliance notices and penalties that vary according to the employer’s size. Large employers that do not comply could be liable for escalating penalties of £10,000 a day. Criminal penalties could apply in the case of “wilful” failure to comply.