Q&A – Compulsory pensions

I am HR Manager in a medium-sized business with about 250 staff. We have grown quickly over the past few years and although we have a stakeholder scheme in place, we don’t contribute to it. I know that pension auto-enrolment is on the horizon – can you tell me when it will affect us, and what we need to do?

As you may be aware, the current position is that employers with 5 or more employees have an obligation to designate a stakeholder pension scheme for staff with 3 months’ service or more. There is no requirement for the employer to contribute to the scheme, and the onus is on the employee to decide to join it if they wish.

In an effort to encourage employees to save for their retirement, the Government are introducing compulsory pensions. Eventually the plan is for all employers to have a legal duty to enrol their eligible workers into a pension scheme. The enrolment will need to be automatic and the scheme will be required to meet certain minimum requirements.

The first employers affected will be from 1 October 2012, but that applies only to organisations with 10,000 or more workers on PAYE. For smaller employers, the implementation dates will be: 

• Between 1 April 2013 and 1 February 2014 for 250 – 9,999 workers
• Between 1 April 2014 and 1 October 2015 for 30 – 249 workers
• Between 1 January 2016 and 1 April 2017 for those with fewer than 30 workers

The relevant number of employees is the number on your payroll at 1 April 2012, so if your company continues to grow, the numbers on 1 April 2012 will still need to be used to determine your relevant date. You can of course choose to implement the changes earlier than the relevant date if you want to.

There is a helpful interactive tool on the Pensions Regulator’s website here: www.thepensionsregulator.gov.uk/employers/tools. From the information you have provided, it appears your ‘staging date’ will be 1 February 2014. The Regulator is planning to send employers reminders 12 months and 3 months beforehand.

When you are required to implement the new rules you will have to register with the regulator, automatically enrol your eligible workers (after a three month waiting period) and pay minimum employer contributions. To be eligible, they must be working in the UK, aged 22 or over (but under state pension age) and earning more than £7,475 a year (on 2011 figures). If they are already in a pension scheme that meets the relevant quality requirements then you will not be required to enrol them in a different scheme.

 In terms of contributions, the rules will require an 8% contribution, of which at least 3% must come from the employer and 1% will come from tax relief – the remainder will come from the individual. Workers will of course have the right to opt out of the scheme if they wish. If they opt out within one month of being automatically enrolled, they will have a right to a refund of contributions.

It may be that you have an existing pension scheme which meets the relevant requirements. If that is the case, you can apply to have your scheme certified. If you do not already have a suitable scheme, you will need to put one in place, or alternatively go for the Government’s plan, which is called NEST (the National Employment Savings Trust).

In terms of what you need to do to prepare, this will depend on your existing pension arrangements for your staff, if any. It is certainly a good idea to familiarise yourself with the Pension Regulator’s guidance, and if you have a suitable scheme, to find out about applying for certification in due course.

While the team at Pure Employment Law are not pensions specialists, we are advising businesses on this issue as part of their responsibilities as employers. We have contacts with specialists in the pensions industry who we can refer to for specific expert guidance if necessary.

Do you have a question you would like us to answer in a future ebulletin? Please contact any member of the Pure Employment Law team (01243 836840 or [email protected])