Auto Enrolment & Qualifying Workplace Pension Legislation.
What is Auto Enrolment really all about?
Well, people are living much longer lives now. This means people can enjoy more time in retirement and therefore need to plan and save for their later years. However, the Government estimates that around seven million people are not saving enough to meet their retirement income needs, applying great pressure, therefore, on the future state benefits system. Given this “real” issue, the Government is making changes to the pension system, which, as an employer or an employee, will affect you.
What do the changes mean for employers?
Since 2012, employers have been required to automatically enrol all eligible jobholders into either the National Employers Savings Scheme (NEST) or an alternative ‘qualifying’ or ‘certified’ workplace pension – and to makeminimum contributions into it on behalf of their employees. The process is being staged, dependent on employee head count, from 1st October 2012 to right the way through to 1st September 2018, with large employers being the first to have to take action.
Who will need to be automatically enrolled?
All jobholders working in Great Britain aged at least 22 years old who have not yet reached State Pension age and are earning more than £9,440 a year (the income tax threshold at 2013/2014) will need to be automatically enrolled into either an employer’s workplace pension, the NEST scheme, or a qualifying alternative scheme.
What is the minimum contribution employers must pay?
Under NEST (or a qualifying scheme), employers will need to contribute a minimum of 3% on a band of earnings for eligible jobholders – between £5,668 (the lower qualifying earnings band limit for 2013/2014) and £41,450 (the upper earnings limit for 2013/2014). This will be supplemented by the jobholder’s own contribution and around 1% in the form of tax relief. Overall contributions will total at least 8% for this type of scheme.
Who can opt in?
Jobholders aged between 16 and 22, and between State Pension age and 75 who are earning more than the above figure, will be able to opt in to their employer’s workplace pension and will qualify for the compulsory minimum employer contributions. Those earning below the above figure may opt in to their employer’s workplace pension. Their employer will not be required to make a contribution, but may do so, if they wish.
Which scheme can employers use?
Employers will be able to choose the pension scheme(s) they want to use provided the scheme(s) meet certain quality criteria (including any current scheme). These may be based on contributions or benefits people receive. ‘Qualifying’ schemes have contribution levels based on the same band of earnings as NEST, whereas ‘Certified’schemes have a potentially wider contribution range. There are different rules for Occupational Defined Benefit schemes and Money Purchase schemes. It is essential that you be guided professionally through the options set before you.
When do the changes start?
The changes have already started and began in October 2012. Automatic enrolment will be staged over a period of time, starting with large employers, medium and then small ones. To help employers adjust gradually, the plan is to phase in the employer contribution levels – starting at 1% and then moving to 2% and finally 3%. The jobholders’ contributions will also be phased in over the same period. However, do not be fooled by thinking that Auto Enrolment is simply all about making pension contributions on behalf of your workers. The legislation has detailed far more than this in its many pages and the Pensions Regulator is keeping a very close eye on employers to ensure on-going compliance, not only getting things right at the beginning!
How will I know what to do in the future?
DWP, The Pensions Regulator (TPR) and the Personal Accounts Delivery Authority (PADA) are working to ensure that information will be available to help prepare employers and individuals for the changes. TPR will be writing individually to all employers at around 12 months and again at 3 months in advance of their automatic enrolment start date, to inform you when you need to take action and what you need to do to comply with the law.
What should I be doing now?
As an employer, you should ensure you understand the basic information on the changes as outlined in this letter. A review of existing arrangements should also be undertaken sooner rather than later. For some firms these changes could be in less than 1 pay review’s time! A review is also important as The Pensions Regulator, who will oversee the implementation process, does carry the power to levy fines of up to £50,000 on employers who do not take action.
What do we recommend?
We recommend that you contact us as soon as possible to discuss the wider issues of Auto Enrolment and their effects on you as an employer. Do not under-estimate the new changes! There is lots for you, as an employer, to learn & understand about your new duties and the strict compliance regime that the Pensions Regulator has put in place. As mentioned above, the regulator has the powers to inflict severe penal fines on employers for non-compliance, in some cases up to £10,000 PER DAY! We would strongly advise you to sit down with us, 6 – 12 months before your staging date, in order to allow sufficient time to fully advise you and for you to take on board the knowledge required, understand your duties and compliance requirements, let us help you by building a plan of action within compliant timescales and implementing your plan with you to ensure that you meet your duties in good time. Also, we would advise that you engage us to help you remain compliant, each & every year, by running your on-going compliance to once again, ensure that you do not miss out any part of your duties to your employees and the Pensions Regulator. Once engaged by you, we will conduct a full consultancy brief with you to understand your business, confirm for you your staging date, run through all of your options, check the status of your existing Pension Scheme and advise if it does / does not meet the new Work Place pension criteria, draft up a report detailing all of the things mentioned and advise you fully in terms of your next steps.
If you feel that you would benefit from our consultancy service in respect of Auto Enrolment, please contact us now on 01543 404 618 to arrange a free initial meeting.