From 1 October 2012, the new auto-enrolment pension provisions have been fully underway. Larger employers are the first to be subjected to the new duties, with smaller employers having to auto enrol over the next five and a half years. The following key points should be noted:
- From a company’s staging date i.e. when the employer becomes subject to the new duties, the employer will have to automatically enrol its eligible jobholders into an automatic enrolment pension scheme (a scheme which meets certain qualifying requirements) unless they are already active members of the employer’s existing qualifying scheme.
- If an employer’s existing scheme meets certain requirements, the employees can be enrolled into this. However, if an employer’s scheme does not meet the requirements, then the employees will need to be either enrolled into a new automatic enrolment pension scheme or into NEST, the central government’s scheme.
- To be classed as an eligible jobholder, the person must be a permanent or temporary employee or an agency worker. They must be aged 22 or over and be earning £8,105 or more per year (tax year 12/13). Employers can impose a three month postponement period before enrolling employees.
- If the eligible jobholder is enrolled into a qualifying scheme, the minimum employer contributions will be three per cent of the jobholder’s band earnings (£5,564 to £42,475 for the tax year 12/13), and jobholder contributions are five per cent of their band earnings, although these contributions will be phased in over a five year period.
- There is scope for employees to opt out of the scheme within prescribed periods. However, they will be automatically re-enrolled every three years.
- Employers that breach the auto-enrolment duties will be subject to compliance notices and penalties. These will vary according to the employer's size. However, the largest employers could be liable for penalties of £10,000 a day for failing to comply. There is also a criminal penalty for "wilful" failure to comply with the duties.