30 September 2012
The Government is introducing auto-enrolment, a compulsory requirement for employers to enrol employees into a workplace pension scheme. Auto-enrolment commences for large employers from October 2012 and by 2017 all employers will have to comply with the new regulations.
The government is focused on the number of individuals in the UK who do not save towards retirement. In October 2010 the government commissioned a review that has led to the phased introduction of auto-enrolment; a way of getting employed people to save towards retirement by targeting employers who do not currently offer a workplace pension scheme.
Key points of auto-enrolment
- Between 2012 and 2017 (timing depends on number of employees) every employer will have to auto-enrol all of its qualifying employees into a qualifying workplace pension scheme.
- Employer will need to educate their employees regarding auto-enrolment and the effect this will have on them.
- Employers will need to comply with the new regulations now and in the future.
- Employers can choose to set up their own qualifying workplace pension scheme or use the government NEST scheme.
- Employers who offer an existing workplace pension scheme will need to review that scheme to ensure
that it complies with new regulations now and in the future.
- Employers will have to make pension contributions on the qualifying employee’s behalf.
- The Pensions Regulator will enforce the new regulations.
The NEST option
The review commissioned by the government recommended that a default pension scheme be introduced alongside the auto-enrolment regulations in order to ensure that a qualifying workplace pension scheme is available to all employers. This has led to the launching of the National Employment Savings Trust (“NEST”). Employers who do not already have a qualifying workplace pension scheme, or do not wish to establish one, can use the government NEST scheme.
NEST has been designed as a low cost option, primarily for employees with low earnings. For many, the NEST scheme may not be the best option and other pension providers options may be more attractive.
For example, points of the NEST scheme that may not be favourable for some include:
- NEST has appointed three asset management groups who will run largely passive portfolios.
- Death benefits attached to a NEST scheme will fall within a members estate, unlike more conventional pension schemes.
- Employers will not have any control over the scheme or be able to appoint investment advisers.
- NEST is a largely inflexible solution for an employer who may prefer to operate its own scheme.
Employers should consider their options and take advice on whether NEST is the best option for them.
Timetable for phasing in auto-enrolment
Ultimately all employers will have to comply with the new regulations. The timetable for compliance is dependent on the size of the employers’ payroll (by number of employees).
The table below sets out the current proposed effective dates.
|Payroll size (no. of employees)||Effective date for compliance|
|120,000 +||1 October 2012|
|50,000 – 119,999||1 November 2012|
|30,000 – 49,999||1 January 2013|
|20,000 – 29,999||1 February 2013|
|10,000 – 19,999||1 March 2013|
|6,000 – 9,999||1 April 2013|
|4,100 – 5,999||1 May 2013|
|4,000 – 4,099||1 June 2013|
|3,000 – 3,999||1 July 2013|
|2,000 – 2,999||1 August 2013|
|1,250 – 1,999||1 September 2013|
|800 – 1,249||1 October 2013|
|500 – 799||1 November 2013|
|350 – 499||1 January 2014|
|250 – 349||1 February 2014|
The effective dates for compliance for employers with less than 250 employees is subject to change, but will be between April 2014 and April 2017. Required level of contributions The regulations set a minimum contribution level for employees and employers, which are based on a percentage of qualifying earnings (includes salary, bonus, overtime, commissions and statutory sick, maternity or paternity pay) of each qualifying employee. This requirement will also be phased in over a period of time. The table below sets out the total minimum contribution requirement and how much of this the employer must contribute.
|Effective Date||Minimum total contribution||Minimum employer contribution|
|Up to 30 September 2017||2%||1%|
|October 2017 to 30 September 2018||5%||2%|
|October 2018 onwards||8%||3%|
Employees opt-out option
All qualifying employees must be auto-enrolled by their employers. Employees can later elect to opt-out of the qualifying workplace pension scheme in which they have been enrolled. However employers must auto-enrol those employees again every three years.
Employers cannot encourage non participation in their qualifying workplace pension scheme and cannot provide an employee with the necessary opt-out forms. An employee can only obtain these forms from a third party. The responsibility and decision to opt-out is to be the employees alone.
How can Magma help employers?
All employers should conduct a review of their current pension scheme arrangements (if any) and consider how the new regulations will affect them and their employees. Having done this employers need to implement a chosen strategy and establish processes for ongoing compliance.
The introduction of the new regulations will for many employers result in increased pensions and employment costs. Opportunities for incorporating tax savings should therefore be explored. Many employers may consider reviewing their wider employee benefits packages.
Employers are advised to seek advice. Our colleagues at Magma Wealth Management are able to advise on all aspects of workplace pension schemes, the new auto-enrolment regulations, and wider employee benefits matters.
For more information on auto-enrolment, for advice on employee benefits generally and to arrange a meeting with Magma Wealth Management, please contact us on 01788 539000.
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