The UK’s most radical pension overhaul for years reached another milestone last week, which will impact thousands of companies and millions of employees across the country. The new scheme for workplace pensions, which came into force in 2012, was introduced to tackle fears that people are living for longer but are not putting enough money aside for their old age. The Government has sought to address this by bringing in an automatic enrolment workplace pension scheme.
The country’s largest employers, which tend to have the most experience of pensions and explaining their benefits to workers, were first to join the scheme in autumn 2012, followed by medium-sized companies. From 1st June this year, workforces with fewer than 30 employees have started to be phased into the scheme.
By April 2018 all employers will have to provide a qualifying scheme for workers, automatically enroll all eligible job holders onto it, and pay employer contributions. They will also need to tell eligible employees that they have been automatically enrolled and how to opt out if they wish to do so.
Under the Government’s auto-enrolment scheme all employees over the age of 22 and earning more than 10,000 a year will have the right to a workplace pension, unless the employee chooses to opt-out.
How many workers / employees involved?
• 5.2 million workers in 45,000 companies have joined the scheme so far, according to the BBC
• Between now and 2018, a further 3.8 million workers should have joined, representing 1.3 million employers
• 9 out of 10 employees have chosen to ‘opt in’ to the process so far
Your pension entitlement
Under auto-enrolment, a percentage of your pay is automatically put into a pension (unless you choose to opt out of the scheme). Your employer also contributes, with Government contributions also being made through tax relief.
Employers’ minimum contribution rates into workplace pensions are being increased in stages:
1. At present, employers must contribute 1% of an employee’s qualifying earnings;
2. From October 2017 this will increase to 2%;
3. From October 2018 it will increase again, to 3%.
How will you be aware of your obligations as an employer?
Employers can use their PAYE reference number to check exactly when they will reach their ‘staging date’ (which is when their auto-enrolment duties come into effect). Employers can check their staging date using a tool on the Pensions Regulator’s website at www.thepensionsregulator.gov.uk/employers/staging-date.aspx .
The effect of this scheme means that every employer (even if you only have one employee) will have to automatically enrol all eligible staff on a workplace pension by 2018. Employers ignoring their auto-enrolment duties could face fines, currently a fixed penalty notice of £400. If they continue to ignore their duties, they face an escalating penalty of between £50 and £10,000 per day for failing to comply with a statutory notice.
Smaller employers – those with up to 50 staff – with little experience of pensions, are more likely to find it difficult to cope with the administrative and cost burden of auto-enrolment, rather than large firms well versed in workplace schemes. ‘Micro-employers’, such as carers for the elderly, are likely to be caught off guard, as many are not prepared for these costs.
The workplace pension scheme will have an effect on every company’s cash flow and early planning is advisable in order to make the necessary adjustments. Even those companies that already offer a workplace scheme will need to review that scheme in order to ensure that it conforms to the new legislation.