Workplace Pension Law
The new duties will be introduced in stages over a four year period, starting for a handful of larger employers from October 2012 and then others staged over the following four years. Some of the implications are still subject to change.
Every employer is allocated a date from when their duties first apply known as their ‘staging date’, from which the employer has one month to fully comply with new pension law.
This staging date is based on the number of people in an employer’s HMRC PAYE scheme. Employers with the largest number will have the earliest staging date. To find your staging date go to www.tpr.gov.uk/staging
Employers need to:
- Provide employees with information about the changes
- Register with The Pensions Regulator (‘the regulator’)
- When the time is reached – automatically enrol certain employees into a qualifying pension scheme
- Process pension contributions at the due point.
What will employers need to do?
Assess their workforce
Employers will need to initially assess their workforce to see what their duties will be. In particular, they should find out whether they are likely to have an automatic enrolment duty.
Choose a pension scheme
Employers with an automatic enrolment duty must choose a pension scheme that meets the new legal requirements for when those duties commence. Employers might use an existing scheme they have, or set up a new one with a chosen pension provider. In addition, there is the new pension provider, the National Employment Savings Trust (NEST) which has a public service obligation to accept any employer as a client. Each pension scheme will have its own rules (it is an employer scheme), but all employers will need to provide the scheme with information about individuals being automatically enrolled.
Identify who to automatically enrol
Employees who need to be automatically enrolled are called ‘eligible jobholders’. They are:
- Aged between 22 and state pension age
- Working, or ordinarily working, in the UK
- Earning above a certain amount (currently proposed to be £7,475).
The location of the employer is not relevant, neither is the worker’s nationality or the length of their stay in the UK. What is relevant is whether they are working in the UK.
When considering whether a worker’s earnings are above or below the relevant earnings limit, an employer needs to look at what is known as the ‘qualifying earnings.’ This will include earnings in salary, overtime, commission, bonuses, sick pay, maternity, paternity and adoption pay.
It is important for employers to assess and understand what duties might apply.
Register with the regulator
At the relevant time, the employer must register with the regulator. This is an online registration process.
Provide workers with information about the changes
Employers will need to inform their employees about the changes and how they are affected. This must be provided in writing (but can be via email). However, it is not enough just to point individuals to an internet or intranet site, or display a poster in the workplace. If the specified information requires personal or individual data to be communicated, it should not be included in a generic communication. In these circumstances, the employer is likely to have to write to (or email) each worker individually.
Where the specified information does not require individual data (e.g. the information to jobholders about their right to opt in), it may be possible to provide the information in a generic communication, such as a joining pack.
The duty is on the employer to provide the right information to the right individual at the right time. Someone acting on the employer’s behalf (such as an Independent Financial Adviser (IFA), provider or benefit consultant) can provide the information, but it remains the employer’s responsibility to make sure it is provided on time and is complete and correct.
Within three months of the auto-enrolment point the employer is required to commence pension contributions. The law sets out some minimum contribution levels (overall minimum and a minimum in relation to employer contributions).
Many employers already offer pension schemes to staff. Under these new requirements, the rules of these schemes must require the employer to pay an overall minimum contribution of at least 8% of the employees qualifying earnings, of which at least 3% of this contribution must be from the employer.
Employers who already have a pension scheme can confirm that it is suitable for automatic enrolment by a process called ‘certification’.
Process any opt-out notices
Those who have been automatically enrolled also have a right to opt out. There is an opt-out period of one month, where any deductions made (if any) from their salary will be refunded. The employee can choose to cease membership at any time, although they may not be entitled to any cash refund of contributions after the end of the one month opt-out period.
Opt-out is via a document called an ‘opt-out notice’ available from the pension scheme provider (not the employer).
When employers receive a valid opt-out notice within the one month period, they must pay back any contributions deducted from the worker’s pay (if any). Equally, any contributions the employer has made must be refunded to the employer by the pension scheme.
Process opt-in or joining requests
Employers must also put some other employees into a pension scheme if asked to do so. Some employees have rights to ‘opt in’ to the scheme and the employer is required to arrange this and make employer contributions. Others have a right to ‘join’ but there is no requirement on the employer to make employer contributions.
Keep accurate records
Employers must keep specific records about pensions. Most of these records must be kept for a minimum of six years. Employers can use electronic or paper filing systems to keep or store any records, as long as they are legible or can be produced if the regulator asks to see them.
What should employers do now?
- Confirm their staging date at www.tpr.gov.uk/staging
- Plan the timetable for when they need a pension scheme in place and take action if necessary – including planning when and how to assess the workforce and appropriately communicate
- Budget for these changes – both for the employer contribution and additional costs for administration
Further information with regular updates on the latest position is published by The Pension Regulator.
Ceridian has extensive experience in the operation of occupational pension schemes within payroll. The requirements to calculate contributions under pension reform are similar if not exactly the same as many occupational pensions schemes already in existence.
Ceridian Consultancy Services can assist with the planning and delivery of the employer business transition to pension reform, however Ceridian cannot provide independent financial advice or advise on pension provision itself.
Elements of statutory change are subject to parliamentary approval, further revision and change. Elements of pension reform are subject to further consultation. Equally Ceridian’s assessment is also subject to change as further information is provided by the relevant authorities.