Automatic Enrolment Pension Scheme: The Essentials
The long-awaited auto-enrolment pension scheme comes into effect from 1 October 2012. The scheme affects every UK employer and aims to ensure that all eligible “jobholders” (broadly, employees and other workers earning over a minimum amount) automatically become members of a qualifying pension scheme. Importantly, the scheme requires employers to pay a mandatory minimum contribution into the eligible jobholders’ pensions. This article gives a brief overview of what is a complicated scheme.
When will it affect you?
The auto-enrolment requirements are being phased in, with employers becoming subject to “enrolment duties” from their particular “staging date”. These staging dates are being rolled out over a five-year implementation period starting on 1 October 2012 and depend on the number of workers in an employer’s PAYE scheme. Again, the detail is complex, but broadly the staging dates are:
- more than 250 employees: staging dates between 1 October 2012 and 1 February 2014;
- between 50 and 249 employees: staging dates between 1 April 2014 and 1 April 2015;
- fewer than 50 employees: staging dates between 1 June 2015 and 1 April 2017;
- new employers set up between 1 April 2012 and 30 September 2017: staging dates between 1 May 2017 and 1 February 2018.
Employers with fewer than 50 workers on 1 April 2012 who had (or were part of) a PAYE scheme with 50 or more persons on that date can choose to defer their staging dates so they run from 1 August 2015 to 1 April 2017.
The Pensions Regulator intends to notify every employer of their exact staging date 6-12 months before they are required to begin auto-enrolment.
What does this mean for you?
Every employer in the UK will need to consider the steps it must take to comply with the new duties, including whether any changes will be needed to existing scheme rules and procedures.
All employers operating in the UK will have automatically to enrol into a qualifying pension scheme jobholders who:
- are aged 22 to state pension age;
- earn more than the minimum earnings threshold – set in line with the level at which the individual starts paying income tax (currently £8,105); and
- are not currently in a qualifying pension scheme.
There are detailed rules governing whether a pension scheme is qualifying.
Some other types of worker (including some agency workers and contractors) will be entitled to opt in, despite not being subject to auto-enrolment.
Contributions are not calculated on normal pensionable salary, but on bands (currently ranging from £5,564 to £42,475) of total earnings (including e.g. overtime and bonus). Eventually, employers will be required to contribute at least 3 per cent of the relevant band, with the employee making up another 5 per cent. The contribution levels are themselves being phased in, starting at 1 per cent employer and 1 per cent employee contributions.
There are detailed provisions relating to the information that employers are required to provide to jobholders about the scheme at least one month before their auto-enrolment date.
Usually enrolment should take place within one month of the jobholder becoming eligible, but employers may postpone this for three months in certain circumstances. This should mean that short-term workers will not need to be auto-enrolled.
Whilst the scheme is mandatory for employers, jobholders can opt out and will be able to opt back in at a later date. Employers must also re-enrol eligible jobholders (even if they have opted out, unless they have done so in the past 12 months) every three years after the date they first became subject to the employer duties.
There are significant anti-avoidance provisions, so employers will for instance not be able to offer financial inducements to opt out of membership or offer jobs on the basis that favours those indicating an intention to opt out.
Thankfully for employers, jobholders will not be able to bring individual Employment Tribunal claims for breach of the scheme itself, although the Pensions Regulator may bring enforcement action. The regulator has wide-reaching enforcement powers including to impose fines of up £10,000 a day depending on the size of the employer. In extreme cases, certain acts or omissions by an employer can amount to criminal offences.
Employees will however be able to bring Tribunal claims for detriment or dismissal as a result of seeking to enforce their rights under the scheme.
As can be seen from this brief review of the new scheme, auto-enrolment will have major implications for all employers and it is vital to understand how it will affect your own business.
For more information on the impact of auto-enrolment, please follow the link to the Pensions Regulator’s auto-enrolment webpage:
http://www.thepensionsregulator.gov.uk/automatic-enrolment.aspx or contact one of the MH Employment Team.
Bob Cordran and David Bettis