|
Further to the recent
changes to the Pensions Act 2008, the phasing in of the new
auto-enrolment into a company pension scheme begins in
October 2012, with the largest employers (those with
120,000 staff or more) being affected first and smaller
employers employing less than 30 staff being required
to begin auto-enrolment by 2017.
Once employers
become subject to the new rules they will be required to
auto-enrol eligible employees into a pension scheme if they
are using PAYE regardless of how many employees they have.
The impact of these new regulations on employers will be
massive and it is in the their interests to seek careful
advice before embarking on the scheme.
Responsibilities of
the Employer
Ø Employers
must enrol eligible employees into a pension scheme.
Ø Employers
will be required to make contributions to the pension
scheme to top up those made by the employee.
Ø Employers
must keep employees informed when they roll out the pension
scheme and of any changes in the scheme that may
affect them.
Ø Employers
must register with The Pensions Regulator – this will be an
online process, details of which will be advised later in
the year.
Ø Employers
must keep detailed records of their employees (including
pension schemes) for a minimum of 6 years.
Employee
Eligibility
Ø Employees
must be aged between 22 years and state retirement age
Ø Employees
must be working in the UK
Ø Employees
must be earning a specific amount (at present the figure
proposed is £7,475 pa)
Ø Employees
not already in a pension scheme that meets qualifying
requirements
Nationality, length
of stay in the UK or residency is not relevant in
determining eligibility, only that employees are ordinarily
working in the UK. Casual workers, contractors and
freelancers, as well as contracted employees will need to
be auto-enrolled if they meet the required criteria.
Qualifying earnings
must also include overtime, commission, bonuses, sick pay,
maternity/paternity/adoption pay in deciding the
eligibility of the employee.
What this means for
Employers
The total
contributions must be 8% of the employee’s gross earnings
between £5,035 and £33,540 per annum. (Anything
earned over that is not taken into account when calculating
how much to pay). The employer must pay 3%, and
the employee 5% on which they can obtain tax relief.
Both employer and employee can opt to pay more if they
wish.
Choosing a pension
provider
Employers will need
to decide what pension provider they use for
auto-enrolment. They may have an existing scheme in
place or access to one, but it must comply with legislation
criteria.
Also available is
the National Employment Savings Trust (NEST). This
has been established by the Government to ensure that
employers can access pension savings and comply with the
rules. The advantage of using this scheme is that if
employees change firms they can still keep the pension
scheme with NEST. Those who have pension schemes with
private pension providers will have their schemes frozen if
they change jobs, and they could end up with many frozen
pension pots if they change regularly. They would not
be allowed to transfer from one private pension plan to
another.
To conclude
This new law will
eventually affect all employers who employ even just 1
employee eligible for the scheme. It will be phased
in over the next 5 years.
Employers with
trust based schemes may find them becoming more expensive
with a surge in membership, so it may be more cost
effective to switch to a contract-based plan.
Employers can
utilise a ‘waiting period’ of three months following an
employee commencing employment to assess their
eligibility. In addition, employees may give written
notice to opt out of the scheme, (called an ‘opt out
notice’) available from the pension provider, within 1
month of being enrolled on the scheme. Any
contributions paid in that time would be refunded.
After that 1 month period it will be more difficult to opt
out.
Further information
on auto-enrolment can be found at www.thepensionsregulator.gov.uk and by
contacting the Corren Troen employment team.
|
