In 2006, the Department of Work and Pensions estimated that around 7 million people were not saving enough for their retirement needs.
In order to increase private pension provision for these people, changes are due to take effect from October 2012 which will affect all employers. They will all have to offer a qualifying workplace pension scheme to their workers and that all eligible workers must be automatically enrolled into the chosen scheme.
This scheme could be the NEST, which was created by the government to provide a low cost, independent and qualifying workplace pension scheme that any employer can use. Remember, of course, that you may already have a qualifying pension scheme for all staff or that you may prefer to set up your own scheme rather than use NEST.
To start with, we will look at your responsibilities under the new arrangements.
Part 1 – Auto Enrolment
a) Employer duties
- The employer will be required to automatically enrol, or automatically re-enrol “eligible jobholders” in a qualifying pension scheme.
- The employer will also be required to include a “non-eligible jobholder” in that scheme where the jobholder has given the appropriate notice that he wants to be included in that scheme.
- An employer will be required to offer access to a pension arrangement for employers with no qualifying earnings, but not to contribute to that arrangement.
A “jobholder” is an employee or worker who ordinarily works in Great Britain and who is aged between 16 and 75.
Automatic enrolment will be introduced over a four year period, commencing on 1 October 2012, with the auto enrolment date dependent on the size of the employer. It will start with the largest employers, followed by medium sized employers and ending with the small employers. However, a small randomly-selected group of employers with fewer than 50 workers will be subject to the new rules ahead of other small employers. This is to enable the notification and compliance arrangements in conjunction with the employer duties to be fully checked and to ensure they meet the needs of smaller employers.
b) Early automatic enrolment
If they want to, employers can bring forward the start date for their employees’ automatic enrolment after the rules apply from October 2012.
If you want to do this, you have to make a declaration to the regulator that you:
(i) Understand the implications of bringing your automatic enrolment date forward, in that the compliance regime will apply from that date
(ii) Have an agreement with a pension scheme provider to supply a scheme that will accept all their eligible jobholders from the brought forward entry date
But why would you want to do this? The reason is that you may want to set up your own scheme now, rather than wait for the inevitability of NEST, and this allows you to sort it out as soon as you want before the deadline.
c) Employer duty to maintain active membership
You must make sure that all jobholders remain active members of your scheme, unless the jobholder decides to end their membership.
This means that an employer may not:
- Stop a scheme from qualifying (for example, by paying less than the minimum contribution rate).
- Eject a jobholder from a qualifying scheme.
- Force a jobholder to stop being a member or opt out of a scheme, without putting the jobholder into another qualifying scheme.
Where an employer changes their scheme, they must make arrangements for their jobholders to voluntarily join the new scheme. Where an employer is changing its scheme, it is proposed that you would get one month’s leeway between membership of the old and new scheme to give you time to finalise the changes.
This newsletter article is for information purposes only and should not be viewed as advice. The correct course of action for any given situation is always subject to your individual circumstances and therefore you should always seek professional advice before making any decisions.
Levels, bases of and reliefs from taxation can vary and their value depends on the individual circumstances of the investor.
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