Tuesday, 17 Jan 2012
Do you know what auto-enrolment for pensions means for your business?
First, the (potentially) good news: if you have pension scheme in place for your employees, then the changes introduced by The Pensions Act 2008 (coming into force from this year) may mean that your current arrangements won’t need to be changed. However, many businesses will need to take action to comply.
The new obligations will require every business to automatically enrol employees into a pension scheme and make a minimum contribution. Auto-enrolment will cover most employees above the age of 22, as well as temporary and agency workers. However, provided your existing pension scheme (assuming you have one) is registered and satisfies certain quality requirements, you should be able to continue to use your existing scheme. In the absence of an existing plan there is to be a new government-established central scheme (NEST). In contrast to the current situation, employees will have to opt-out of a pension scheme rather than specifically opt-in.
Whilst the starting date for auto-enrolment is, for some very large businesses, 1 October 2012, it is being introduced in stages. The starting date will depend on the number of workers in the employer’s PAYE scheme as at 1 April 2012 and employers will be placed into monthly tranches depending on this. For businesses with less than 50 workers as at 1 April 2012, their date to start auto-enrolment will span a period from 1 May 2015 to a date yet to be confirmed. For other businesses with less than 3,000 staff the dates have not yet been formally confirmed but will not be earlier than July 2013.
In terms of the employer’s contribution transitional arrangements will dictate that in year one to four of an employer being covered by the provisions the employer will have to contribute 1 percent of the employee’s salary (this figure will be based on a current earnings cap of £33,500), in year five it will be 2 percent and thereafter it will be 3 percent. The employee will also be required to make a set contribution.
Points to consider
Even although the commencement date is likely to be years away for smaller employers, the following are issues which could be usefully considered at this stage:
- If an existing scheme is to be used, does it satisfy the quality requirements? As a general rule, an employer with a defined benefit scheme will need to obtain confirmation of this from the scheme actuary. Employers with defined contribution schemes will need to ensure the minimum contribution requirements are met.
- If an employer plans to use its existing scheme, will any rule changes be required (for example relating to eligibility or waiting periods)? If so, how are such changes implemented in the workplace?
Pensions are all about planning for the future - at CCW LLP we can help you ensure the approaching changes don't mean rainy days for your business.
If you need any further information or advice on this matter, please contact Caroline Maher.