Workplace Pension Reforms
The workplace pension reforms have begun to be phased in. These changes will have a significant impact on businesses of all sizes. The deadline for compliance with these reforms was based on the size of your largest payroll on 1 April 2012. Hence, for the largest employers, Auto-Enrolment became a reality from 1 October 2012.
What is Auto-Enrolment?
- Under the Workplace Pension Reforms, all employers will have to place their employees (who meet certain requirements) into a pension scheme and make regular contributions to this pension scheme.
- Members of staff will be able to opt out of this pension scheme but if they do not opt-out then they will automatically remain in the scheme.
- Staff members must be told of their right to join your pension scheme.
- A system of fines will be introduced for firms who do not comply by their staging date.
Who must be automatically enroled?
Any worker earning over £10,000 per year and aged between 22 and state pension age must be automatically enrolled by their employer into a pension plan (as of April 2014)
You should also note that any of your employees who earn over £5,772, who are not automatically enrolled, can ask to join the pension plan. You are obliged to make people in this bracket aware that they can join the scheme.
For those employers who already provide a pension scheme for some or all of their workers, the decision must be made whether they want to continue using this pension scheme to meet their duties for existing members (and how they will adapt this existing scheme if required). Employers must also decide how they will plan to meet all of their new automatic enrolment responsibilities.
In order to make a decision, employers must fully understand the criteria for both the qualifying scheme and the automatic enrolment scheme and then be satisfied that their existing pension scheme meets (or can be amended to meet) these criteria.
Do not assume that as you have an existing workplace pension scheme it will be Auto-Enrolment compliant.
An employer can certify that their scheme is a qualifying pension scheme for Auto-Enrolment if it passes any of the the alternative quality tests based on the scheme's usual pensionable pay definition.
Those employers without an existing pension provision will need to put an automatic enrolment scheme or a qualifying scheme in place with effect from their relevant staging date when the duties begin to apply.
In order to be an automatic enrolment scheme, there are three requirements that a pension scheme must meet:
- Automatic enrolment criteria
- Qualifying criteria
- Minimum requirements
The three requirements above are relatively complicated and it is essential that employers get this right.