Chiene + Tait's Justine Riccomini comments on the implications all employers, regardless of size, need to know about - and prepare for.
What are the new rules?
The new pension regulations, which come into force from 1 April 2012, require all employers who employ workers who work (or ordinarily work) in Great Britain, to ensure that all workers they employ under employment contracts are automatically enrolled into a qualifying pension scheme if they are not already enrolled into one.
When do they apply from?
The new rules apply from 1 October 2012. However depending on the size of your employee headcount and remittances to HMRC, there are different "staging dates". Larger employers are being brought in first, with smaller employers who remit less than £50,000 per annum to HMRC being brought in from January 2013 onwards. Additionally, some employers with less than 50 employees will be chosen at random and asked to participate from 2012 as part of a pilot.
Do they apply to my workers?
If your workers are aged between 16 and 74, are working in Great Britain and earn over £5,035* or are between 22 and State Pension Age and earn over £7,475*, they will have the right to opt in or will need to be automatically enrolled, respectively. In both categories, an employer contribution into the pension scheme will be required.
*earnings figures are expected to be uprated on a yearly basis starting with early 2012.
What if my workers don't want to join a pension scheme?
They have the right to opt out after a month. However, you have to re-enrol them again every three years unless they have opted out in the previous 12 months. To opt out, the employee has to obtain a form from the pension administrator, complete it and pass it to you for onward submission. You are not allowed to try to induce your employees to opt out of the scheme in any way whatsoever.
What about self employed or agency workers?
Self employed workers are not included but the new rules apply to agency workers. Remember also that from October 2011, agency workers with more than 12 weeks continuous service are entitled to employment rights in the same way as permanent employees.
The new rules are not a reason to make your workers self employed or to only engage workers on a self employed basis from now on. HM Revenue & Customs are as determined as ever to ensure that all workers are properly classified – in other words, if someone is really an employee, they should be paid through the payroll and enrolled into a qualifying pension scheme.
How much is this going to cost?
The basic costs start at 1% contribution of pensionable salary by the employer, rising to a maximum contribution of 4% by some employers by 2017.
What do I need to do about all of this?
You need to find out when your individual "staging date" is, then prepare a timetable for bringing auto-enrolment in.
You may wish to review your current pension scheme arrangements.
You will need to review your HR policies and procedures to ensure they are compliant.
You need to ensure you have the financial ability to pay money into the pension scheme for all your workers.
You may wish to consider using a salary sacrifice arrangement to save employer NIC on pension contributions.
Most importantly, you need to communicate the rules to your employees. Remember, it is against the law to encourage employees to opt out of the new pension arrangements.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
