Pension law is changing. By April 2017 all UK employers will have to automatically enrol their eligible workers into a certain type of pension scheme.
AUTOMATIC PENSION BENEFITS
In the past, many workers did not have valuable pension benefits, because either their employer did not offer them a pension, or they decided not to join their company’s pension scheme.
Auto enrolment changes this. It makes it compulsory for employers to automatically enrol their eligible workers into a pension scheme. The employer must also contribute a percentage of the eligible worker’s salary into the scheme.
WHEN DO THE NEW EMPLOYER DUTIES APPLY?
The new duties will apply with effect from a “staging date” assigned by the Department for Work and Pensions (DWP).
To find your date simply type in your PAYE reference number using the tool on the website www.thepensionsregulator.gov.uk.
An employer must register with the Pensions Regulator within five months of its staging date. The registration process must be undertaken online.
WHO MUST BE AUTO-ENROLLED?
All eligible jobholders must be enrolled in an automatic enrolment scheme.
A “jobholder” is a worker who:
- Works (or ordinarily works) in the UK under a contract;
- Is aged at least 16 and under age 75; and
- Is paid qualifying earnings in a relevant pay reference period. (Currently £5,772 to £41,865).
- The definition of “worker” is an individual who:
- Has entered into or works under a contract of employment or any other contract, whether express or implied, and (if it is express) whether oral or in writing; or
- Undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual.Not all jobholders will have to be auto-enrolled in a pension scheme. To be eligible for auto-enrolment, a jobholder must:
- In many cases, it will be easy to identify whether someone is a worker. Permanent and temporary employees, including contract and agency workers, will count as workers. Self-employed individuals and consultants or casual workers may or may not be caught depending on the circumstances.
- Be aged at least 22, but below state pension age. (Currently 65 for men and 60 for women) but it is likely women’s SPA will reach age 65 by November 2018.
- Earn more than the earnings trigger in a relevant pay reference period (which is the same period used to assess qualifying earnings). The trigger has been set at £10,000 a year in the 2014/15 tax year. WHAT TYPE OF PENSION SCHEME MUST JOBHOLDERS BE AUTO-ENROLLED INTO?EMPLOYMENT PROTECTION MEASURESPENALTIES FOR FAILING TO COMPLY WITH THE EMPLOYER DUTIESSUMMARY OF STEPS TO TAKE IN PREPARATION FOR AUTO-ENROLMENT
- In the first instance, the Pensions Regulator can issue a formal compliance notice. If a breach is not remedied, the Regulator can impose fixed penalties starting at £400, escalating to £50 a day for employers with one to four workers or £10,000 a day for those with 500 or more workers.
- As a general principle, employers cannot contract out of, limit or exclude any of the new duties imposed on them. It will be unlawful for you to ask job applicants at interview whether they plan to opt out of auto-enrolment. Equally, it will be unlawful to try to persuade staff to opt out.
- Employers with a workplace pension scheme should ensure it is a qualifying pension scheme. Those without one will need to set one up and understand the cost implications of auto-enrolment, as well as ascertaining which pension scheme will best suit their needs.
- Non eligible jobholders have the right to request to join the pension scheme but do not have to be automatically enrolled.
- Staging date. Confirm your staging date.
- Registration. Register with the Pensions Regulator within five months of your staging date.
- Workforce. Assess your workforce to determine which categories of individuals count as “workers” and which of these qualify as eligible jobholders and non-eligible jobholders.
- Pension scheme. Put in place a pension scheme or review your existing pension scheme and decide whether all jobholders will be enrolled in the same scheme or whether more than one scheme will be used.
- Postponement. Decide whether to use a postponement period and, if so, which categories of jobholder it should apply to.
- Notices. Prepare standard-form documents, including opt-out and opt-in member notices, standard auto-enrolment, opt-in and joining information notices and postponement period notices if appropriate.
- Contracts of employment. Review standard-form contracts of employment and decide whether to contractually enrol new jobholders into a pension scheme or include wording about auto-enrolment. Consider whether contractual data protection provisions need updating.
- Payroll. Set up auto-enrolment payroll processes.
- Recruitment. Ensure staff are aware of prohibited recruitment conduct and prohibitions on inducements to opt out.
- Records. Ensure proper record-keeping procedures are put in place.
- Re-enrolment. Set up re-enrolment processes starting with the third anniversary of the first auto-enrolment dates.
Please contact us if you would like further advice.