As an employer, what do you know about auto-enrolment pensions?
Kenton Price of Kellands discusses auto-enrolment and what is means for employers.
The biggest shake-up of pension saving in years was introduced last October 2012 – yet many companies are not fully aware of it.
Every employer will now need to have a pension scheme in place and automatically enrol ‘eligible workers’ into that scheme and make contributions on their behalf.
These workers can then choose to opt out but they must be enrolled in a qualifying scheme in the first place.
Automatic-enrolment is not an option
By law, all employers, even those with only one employee, will have to select a pension scheme in which to enrol their employees.
Many employers already operate pension schemes for their employees, but often membership is restricted to certain groups or category of employee, for example full time employees, permanent staff, management grades only or those with at least two years’ service.
Even where membership is open to all, take up can often be low, with on average only 40% of eligible employees actually joining.
For many employers therefore, automatic enrolment will mean a fundamental review of their employee benefit arrangements and some hard decisions.
So why has auto-enrolment been introduced?
The rationale behind it is that people are living longer and are likely to enjoy a longer retirement.
However, many people are not saving for their retirement at all, and of those who are, many aren’t saving enough.
Under the new auto-enrolment scheme, employees who are aged 22 or above but under State Pension age, that currently earn more than the minimum earnings threshold and are not already in their employer’s pension scheme, must be enrolled.
Employers will have to make contributions for each enrolled employee. For employees, as well as the employer contribution, the government will contribute to their pension through tax relief.
When you have to introduce it depends on your ‘staging date’ – which is based on the size of your company.
Very large employers, with over 120,000 workers, had to do this from 01 October 2012. Other employers will follow gradually, over the next few years.
So what does all this mean to an employer?
Well firstly, you have to automatically enrol your eligible employees into a qualifying pension scheme and make employer contributions towards it.
You also have to tell them that they have been automatically enrolled and that they have the right to opt out if they want to. Finally, you have to register with The Pensions Regulator (TPR).
You must not encourage your workers to opt out of the qualifying pension scheme, nor have recruitment practices in place that will benefit job applicants who indicate they are prepared to opt out.
Nor must you treat a worker unfairly because of automatic enrolment. Some draconian fines are in place if you fail to comply.
All this sounds pretty complicated and to some extent it is. Most employers have several questions that they need answered, starting with what is a qualifying scheme and does my existing scheme qualify; or what i
I don’t have an existing pension scheme?
The new employer duties are covered by hundreds of pages of legislation, so it is likely that you will need some expert financial advice to help you through the whole process, including when the changes affect you, what you need to do, what will happen if you do nothing and finally how to set up a qualifying scheme.
The sooner you start the process, the better.
For more information or advice please call 0117 900 4000 or email firstname.lastname@example.org quoting ref: Business Leader.