Pensions auto-enrolment – not as far off as it seems

05/01/2012

By James Willis, Senior Associate in Employment.

You may already be aware of the fact that important changes to the law relating to the provision of pension benefits are due to come into force over the next few years.
The largest employers will need to have their houses in order by October 2012. The relevant, so-called, ‘staging date’ for the smallest employers is much later. But you put off the consideration of this matter at your peril; rather a lot of advance planning is required.

What is this all about?

In a nut-shell, this change in the law will require all employers to automatically enrol “eligible jobholders” into a pension scheme of some form or another within three months of the jobholder commencing employment. The scheme in question might be an occupational scheme, some form of group personal pension scheme or the state-operated National Employment Savings Trust (also known as ‘NEST’).

An ‘eligible jobholder’ is between 22 years of age and state pension age, earning £7,475 a year or more. "Jobholders" may be employees who are permanent or temporary; agency workers will also be covered.

Not only will employees be entitled to be enrolled into an appropriate pension scheme but, presuming that the pension is a defined contribution scheme of some sort, the employer will also be obliged to make a minimum level of employer contribution to the scheme. The level of this contribution is set to rise over a period of five years, from 1% to 3%.

Employees will, of course, be able to ‘opt out’ of the pension scheme on offer. But employers who do anything that might be construed as inducing jobholders to ‘opt out’ will be breaking the law. The Pensions Regulator will be responsible for policing compliance with the new legislation.

Do I need to do anything now?

Most people reading this article are unlikely to have to start auto-enrolling their staff until late 2013 or early 2014. In fact, following a recent change in the law, the smallest employers will have until May 2015 to put their arrangements in place. That might seem a long way off.  But that does not mean that you can put this article to one side and ignore it. You should be planning now for the introduction of these new obligations. In particular, you need to:

  • work out whether you have a pension scheme in place that you are able to use under the auto-enrolment arrangements
  • consider setting up a new pension scheme, should this prove necessary; this is likely to involve taking legal and financial advice on your options and planning carefully
  • consider whether you will simply use NEST instead
  • review your standard contractual obligations and work out what, if any, changes you might need to make to your employment contracts
  • consider who will take responsibility for the administration associated with auto-enrolment
  • budget and plan for the administrative costs and, of course, the cost of the employer contributions that you will be required to make

There is a lot to think about here and the law is by no means straightforward. If you need someone to help you share the load, call a member of the team for further advice.

For more information please contact James Willis on 01322 422540.