In not quite breaking news: on October 2012 a long-heralded employer duty was introduced into UK law, under which employers must automatically enroll workers into suitable pension plans and pay contributions into those plans. Though at the time placing one’s head firmly in the sand might have been very tempting, the new law is now upon us and neither ignorance nor inertia will get you past the Pensions Regulator in one piece.
This is the first in a short series of blogs discussing the legal requirements of the new obligation. There is a lot of complexity for something that commentators fear will ultimately only provide a very small pension!
So why is this important now?
The duty to enroll workers initially only applied to the largest employers and is being gradually phased in over staggered ‘staging dates’, ending with the smallest (and new) employers in February 2018. Employers with between 2,000 and 3,000 employees will be staging on 1 August 2013. With typical lead-in times of 6 to 9 months and industry warnings of capacity crunches among some pension providers, if you haven’t reached your staging date yet, it’s important to know when it is and plan appropriately.
Working out whether a staging date applies is not always straightforward, – the legislation is about as transparent as the plot to Inception. Mercifully the Pensions Regulator has provided a helpful staging date calculator. All employers need to do is input their PAYE reference and it will automatically generate the staging date that applies.
Once you have used the Pensions Regulator’s calculator (and bookmarked the Pension Regulator’s webpage for holiday reading – we’ve all done it. Haven’t we?) the next step is to work out who needs to be automatically enrolled. The auto-enrolment legislation applies to ‘workers’, broadly defined as any individual who:
- has entered into or works under a contract of employment; or
- has a contract to perform work or services personally (and is not self-employed).
When the workers have been identified (trickier than it sounds – we’ll be coming back to this another time) the employer will then need to make sure that those workers are enrolled in a ‘qualifying scheme’. This can be a ‘defined benefits’ scheme or a ‘defined contribution’ scheme, an existing scheme or a new scheme and there are various options available to employers, including the pension scheme set up by the UK Government (the National Employment Savings Trust (NEST)) but whatever the option chosen, a minimum level of contributions must be made into the scheme.
And finally…a word of caution. Workers can opt out of an auto-enrolment pension scheme if they wish to do so, but employers must not offer them incentives or inducements to opt out. Significant penalties, statutory notices and escalating fines may apply if they do so, even wholly inadvertently – so take care!