Pension Legislation Around Automatic Enrolment

January 16th, 2013 | Uncategorized | By Graham Wingar

In the past it was purely optional for employers to decide whether or not to provide pension benefits for their employees. However, in order to enhance personal pension funding the government are drastically changing the laws and regulation around pension provisions supplied by Employers. This article will give you a basic outline of these changes and your responsibilities as an employer. The government has changed details from the point of first considering automatic enrolment until now so it is important that you keep up to date with any changes in legislation going forward.

The Government’s Aim

Due to employees having to opt in to the pension scheme and there typically being no employer contribution many previous Group Personal Pension Schemes have sen a very poor take up. In order to improve take up and therefore increase private pension funding, the government are taking away these two main barriers by bringing in automatic enrolment and compulsory employer funding. This means that instead of employees choosing to enter the pension scheme they will be automatically enrolled into the scheme and contributions taken.

Your Staging Date

The date by which you have to be compliant is governed by your number of employees on the 1st of April 2012 and your PAYE reference number. The earliest date was 1st of October 2012 for employers with 120,000 or more employees gradually working through companies with less employees with the earliest start date for a company employing 30 or less employees will be 1st June 2015.

The comprehensive list of staging dates is available here http://www.thepensionsregulator.gov.uk/pensions-reform/staging-date-timeline.aspx

Employers Responsibilities

From their prospective staging date, any employer employing at least one person will be legally obliged to

  • Set up and register a pension scheme suitable for automatic enrolment
  • Automatically enrol and make contributions for all eligible jobholders
  • Enrol and make contributions for non-eligible jobholders who wish to join
  • Manage the automatic enrolment, joining and opt out process
  • Keep records on how they have fulfilled their responsibilities

Scheme Contributions

In order for the scheme to be classed as qualifying it must meet minimum contribution levels. There are different methods of assessing qualifying contributions but below is the simplest and is based on percentages of the employees total remuneration. The contribution level is to be bought in over three stages.

Date Minimum Employer Contribution Minimum member contribution (gross) Total minimum Contribution
Oct 2012 – Sep 2017

1%

1%

2%
Oct 2017 – Sep 2018

2%

3%

5%
Oct 2018 onwards

3%

4%

7%

 

Enforcement

In order to ensure compliance with the employers responsibilities, the following three stage process for non compliance has been put in place by The Pensions Regulator.

Stage 1 Compliance/ Unpaid Contribution Notice This will detail the breach and detail the timescale over which the employer has to put it right. Interest may be required on unpaid contributions
Stage 2 Fixed Penalty notice If the breach has not been rectified by the given time a fixed penalty of £400 will be applied
Stage 3 Escalating Penalty If employer continues to fail to comply with the first and second notice, then a daily penalty will be payable based on the number of employees.

Number of People Daily Rate
1-4 £50
5-49 £500
50-249 £2,500
250-499 £5,000
500 or more £10,000

 

 

Ensuring you have the most suitable pension scheme in place is paramount in order to offer a quality benefit to your employees whilst reducing the costs and time associated with administering the scheme.

These changes are likely to have great implications on business planning so be sure to understand the effect it will have on your business over the coming years.

Future Asset Management LLP can help ensure you are compliant, have a quality proposition for your employees, offer a direct line for your employees with any queries and help remove a lot of the administration burden.

 

By Graham Wingar