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Pension deadline for employers
8:40am Thursday 21st June 2012 in Advice
From October 1 this year, employers will have to automatically enrol their ‘eligible jobholders’ into a pension scheme and make an employer contribution.
This could be the employer’s own occupational pension scheme or personal pension scheme, provided it meets certain quality requirements.
Otherwise employers will have to automatically enrol their eligible jobholders in the National Employment Savings Trust (NEST), a central scheme set up by the Government.
All employers should now be asking themselves whether they are making the necessary preparations.
The ‘switch on’ date is based on the number of persons in a company’s PAYE scheme on April 1 2012. The regulator will write to every employer at least twice as its ‘switch on’ date approaches.
Staging dates vary from August 1, 2013, for those with 2,000-2,999 employees through to February 1, 2014, for those with 250-349 employees. For PAYE schemes of less than 250, confirmed staging dates will be published.
Staff who meet the following three conditions are eligible for automatic enrolment: They should work or ordinarily work in the UK under a contract. They should be at least 22 years of age and under state pension age. They should be paid 'qualifying earnings' which are above the earnings trigger of £8,105 a year. Once enrolled, pension contributions will be payable on earnings between £5,564 per year and £42,475 which includes wages, bonuses, overtime, statutory sick pay and statutory maternity, paternity and adoption pay.
Importantly, employers must inform staff aged between 16 and 21 or between state pension age and 75 of their entitlement to opt into the auto-enrolment pension scheme.
If any of them choose to join, you must also pay the minimum employer contributions for them (as long as they earn above £5,564).
Similarly, those aged 16 to 74 and earning above £5,564 but below £8,105 will have the right to opt into the pension scheme and receive employer contributions.
Those aged between 16 and 74 and earning below £5,564 will have a right to join a workplace pension scheme but this does not have to be the automatic enrolment scheme.
It could be a stakeholder pension scheme without any employer contributions. Staff earning over £42,475 still have to be auto-enrolled but employers’ obligations extend only to making contributions in respect of earnings between £5,564 and £42,475.
It is possible to give notice and defer duties for up to three months. Contributions do not have to be back-dated but staff can opt-in during this period and receive the employer contribution.
The forthcoming changes require preparation now. Employers are being advised to appoint a project leader to oversee compliance.
Existing pension arrangements should be reviewed to ensure they are compliant. For example, where an employee must consent to salary sacrifice to join the pension scheme, this will be a breach.
So it is vital that some consideration is given to contracts of employment. Do they dovetail with the auto-enrolment duties? Are there members of the workforce who must be notified so they can opt in?
Then considerable thought must also be given to opt outs and how these will be managed while also putting in place processes to identify auto-enrolment triggers for existing employees and new joiners (for example, when they turn 22 or reach the earnings trigger).
Of course, postponement can be used to harmonise enrolment with your payroll and administrative systems so it may be right to take advantage of this.
Also, consideration must be given to those eligible jobholders who have “enhanced protection” because they have large pension pots.
They may wish to opt-out but where flexible benefits are offered, the sole or main purpose of the package must not be to induce opt outs.
Ultimately, the message is that the clock is ticking on this hugely important legislation and preparation is essential to ensure compliance.