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Auto-Enrolment from 2012 onwards
Mandatory pension schemes starting from 2012
Starting on 1 October 2012, UK employers have been required to automatically enrol "eligible job holders" - employees who are aged between 22 years and state pension age (SPA) and to whom they pay gross earnings above the personal allowance threshold, into a "qualifying" pension scheme (these may be either trust or contract based arrangements). These new auto-enrolment obligations affect all employers to some extent, whether large or small, public sector or private.
Two parties have worked together to implement these workplace pension reforms:
- the Department for Work and Pensions (DWP) - responsible for the policy and legislation
- the Pensions Regulator (TPR) - responsible for maximising employers' compliance with their new duties
The deadline date for auto-enrolment depends on how many employees you have.
What is auto-enrolment?
This process requires employers to provide a minimum level of pension benefits to their "eligible jobholders". For example, minimum employer contributions start at 1% and increase to 3%, and employees are obliged to contribute at least 1% rising to 4% phased in over five years. Employees may opt out, but this means that the auto-enrolment process has to be repeated at least every three years
Auto-enrolment is being introduced in stages over a period of five years, based on the size of employers' PAYE arrangements on April 2012. The very largest employers have been required to comply first, and these organisations should have already put auto-enrolment into effect by now.
The schedule of staging dates is as follows:
|Number of Employees||Staging Date|
|120,000 +||01 Oct 2012|
|50,000 - 119,999||01 Nov 2012|
|30,000 - 49,999||01 Jan 2013|
|20,000 - 29,999||01 Feb 2013|
|10,000 - 19,999||01 Mar 2013|
|6,000 - 9,999||01 Apr 2013|
|4,100 - 5,999||01 May 2013|
|4,000 - 4,099||01 Jun 2013|
|3000 - 3,999||01 Jul 2013|
Source - The Pensions Regulator (http://www.thepensionsregulator.gov.uk/employers/staging-date-timeline.aspx).
For employers with less than 3000 employees click here.
National Employment Savings Trust (NEST)
The above regulations are not to be confused with NEST which has been established by the government as a pension scheme that is able to receive pension contributions from an employer. NEST is one of the qualifying schemes available to employers to meet their auto-enrolment obligations.
Workers earning more than the Government determined lower level a year will be automatically enrolled in NEST if their company doesn't have its own scheme. Lower earners can join, but have to opt in.
NEST is a nationwide, trust-based, defined contribution arrangement, and is a ‘qualifying scheme’ for auto-enrolment purposes. Unlike other qualifying schemes, NEST is subject to an annual contributions limit, and in the early years will not be able to make or receive transfers.
Planning for auto-enrolment
It’s already in operation for the largest employers, and if it doesn't affect your own business yet, it's going to happen soon - so start to plan now...
Key considerations for employers:
1. Which type of pension scheme are you offering your staff?
Look at the advantages and disadvantages of an employer pension scheme and the NEST scheme. Once you have analysed this, you can then decide which is more appropriate for your own organisation. A combination of the two schemes may be the best approach initially, with staff eligibility for different schemes contributing to the solution; e.g. senior and employed staff being enrolled into an occupational scheme and contract staff being enrolled into a NEST.
2. Work on your budgets
There is a considerable cost impact of the compulsory 3% employer contribution, and if you offer a higher contribution rate, plan for the cost and long term implications of enrolling all staff on this basis. Look at whether you are making contributions on the full salary amount or band earnings. The key is to budget for these newly introduced measures, so that larger pension contributions do not make a sudden impact on costs. Employers may consider reviewing their total remuneration package in order to absorb these extra costs and looking at methods such as salary sacrifice as a cost-effective way of increasing pension contributions.
3. Review your current systems to make sure they can cope with the additional administration.
Can your payroll and HR systems cope with any extra administration? This is particularly relevant for any organisations that run both an occupational pension scheme and enrol some staff into the NEST system.
4. Effectively communicate these changes to your staff
Consider how you are communicating these changes to your staff. It is important to try and engage employees with their pension and get them to ‘buy-in’ to your company scheme.
A pension scheme is viewed by many as an essential part of their benefits package, and when offered as part of the overall remuneration, can add tremendous perceived value to an organisation and the way it views its employees.
Organisations that provide pension schemes above the standard laid out by the Government are likely to be a more attractive proposition for new and existing employees and demonstrate a commitment to their workforce.
Employers which offer schemes with contribution rates above the statutory minimum may be interested in applying for a pension quality mark to differentiate their scheme from others. (www.pensionqualitymark.org.uk)
Please contact us for further information and advice.
A pension is a long term investment the fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.
NEST is regulated by the Pensions Regulator
State Pension Calc
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