With less than 18 months to go before the automatic enrolment requirements start to bite, the DWP has issued a guide for employers on the basic requirements.
The DWP guidance can be found here
Automatic enrolment - the basics
Every employer will have to enrol into a workplace pension scheme and pay contributions in relation to those workers who:
- Are not already in a qualifying pension scheme;
- Are at least 22 years old;
- Have not reached State Pension age;
- Earn more than the minimum earnings threshold (likely to be £7,475 a year); and
- Work or ordinarily work in the UK.
We understand that the DWP has also issued informal consultation looking at a number of details including the self-certification requirements for DC schemes. The legislation requires DC schemes to have employer contributions of at least three per cent of “qualifying earnings” and total contributions of at least eight per cent “qualifying earnings”. Qualifying earnings are total earnings (including bonuses, overtime etc) within a band currently set between £5,036 and £33,540. Many schemes will have contributions based on a different measure of earnings (for example, 100 per cent of basic pay) so it may be difficult for an employer to accurately assess whether its scheme qualifies. In order to make certification easier, the DWP has proposed a three tier test and as long as the scheme complies with one of the tiers, the employer will be able to provide a certificate. The three tiers are:
- Tier 1 – a nine per cent contribution of pensionable earnings (including a four per cent employer contribution);
- Tier 2 – an eight per cent contribution of pensionable earnings (including a three per cent employer contribution) provided that the pensionable earnings constitute at least 85 per cent of total earnings;
- Tier 3 – a seven per cent contribution of total earnings (including a three per cent employer contribution). All earnings must be pensionable.
The Pensions Regulator is writing to large employers who will be the first to become subject to automatic enrolment in October 2012. The letter includes a five point checklist of the steps they should be taking to prepare. All employers can expect to receive the letter in the coming months and for those who can't wait, the information is available on the Regulator’s website.
Regulator's 5 point plan
- Know when you need to act
- Start the planning process
- Brief key management personnel
- Mobilise an implementation plan
- Communicate the changes to staff