On 1 October 2012 new regulations governing the provision of workplace pensions came into force.
The new automatic enrolment scheme means that by April 2017 all employers will be required to enrol their workers into a workplace pension scheme, whether personal or occupational, and to make employer pension contributions.
However, for the time being, the scheme only applies to the largest UK employers with 120,000 or more employees.
Who does the new regime apply to?
Under the new regime, employers are required to automatically enrol "eligible jobholders" into a "qualifying pension scheme", a scheme which must be either a registered occupational or personal pension scheme. But who will be an eligible jobholder?
A jobholder is widely defined to include both employees and workers, who ordinarily work in the UK under a contract, are aged between 16 and 75, and receive qualifying earnings. For the year 2012-2013 the qualifying earnings band is between £5,564 and £42,475. This band will be reviewed annually to take into account factors such as inflation and earnings growth.
However, not all jobholders will benefit from automatic enrolment. They must also satisfy all of the following criteria:
- Be at least 22 years old and have not reached state pension age.
- Have earnings in excess of the earnings trigger period within a relevant pay reference period (which will be the employer’s usual pay cycle). This trigger will be kept under review but for the year 2012-2013 it is set at £8,105, the same as the PAYE threshold.
- Not already be a member of the employer’s qualifying pension scheme.
An employer’s obligation to automatically enrol jobholders in a qualifying pension scheme arises as soon as they satisfy the above eligibility criteria. In the case of a new employee who begins work midway through a pay reference period, their earnings may not exceed the earnings trigger until the following month in which case their eligibility begins the first day of the following pay reference period.
Steps for employers to take
Once employers fall within the new regime, they should:
- Check if any existing pension scheme is a qualifying scheme.
- Tell all workers what scheme it has selected as the auto-enrolment pension scheme.
- Tell all eligible jobholders that they have been automatically enrolled but that they may opt out if they wish to do so.
- Tell any other workers who have not satisfied the eligibility criteria that, although they will not be automatically enrolled in the scheme, they may opt in if they wish and provide the details for the workers to give notice of this if they wish.
- Automatically enrol the eligible jobholders who do not opt out.
- Contribute a minimum of three per cent of a worker’s earnings by October 2018 - as the provisions are being phased in gradually the initial requirement is for an employer to contribute a minimum of one per cent up until 30 September 2017 and two per cent from 1 October until 30 September 2018.
- Where an eligible jobholder does opt out of the enrolment, the employer is obliged to re-enrol them after a period of three years in order to give the employee the opportunity to reconsider their pension options. However, if they wish, the employee can once again choose to opt out.
Employers should be aware that, to tie in with the new pension provisions, it will now be automatically unfair to dismiss an employee who seeks to exercise his rights in respect of automatic pension enrolment. Employees now also have the right not to be subjected to any detriment due to seeking to enforce their enrolment rights.
A further note of caution for employers is that deliberate failure to comply with the automatic enrolment provisions may amount to a criminal offence for which the sanction is a fine and/or up to two years’ imprisonment. Employers need to be aware that the new provisions are not simply guidelines but are compulsory regulations which must be implemented.
By when must employers comply?
The exact dates for compliance will depend on an employer’s PAYE data. However, the Pensions Regulator has published a staging date timeline to confirm the indicative staging dates that will apply for different sizes of employer.
As a general guide, the position is as follows:
- 250 or more employees - staging dates between 1 October 2012 and 1 February 2014
- 50 to 249 employees - staging dates between 1 April 2014 and 1 April 2015
- Fewer than 50 employees - staging dates between 1 June 2015 and 1 April 2017
- New employers set up between 1 April 2012 and 30 September 2017 - staging dates between 1 May 2017 and 1 February 2018
For more information, the Pensions Regulator has produced helpful guidance materials, which are available on their website.