Workplace pensions and auto-enrolment
Find out more about workplace pensions and auto-enrolment
Published: Oct 20, 2015
By: Scott Symes
Automatic enrolment is ‘one of the biggest reforms to UK pensions in decades,’ according to the National Association of Pension Funds. The Department for Work and Pensions (DWP) estimates that the new rules ‘could almost double private pension income by the time people now starting work reach their retirement.’ No employer – however small – can afford to ignore these changes. This radical set of reforms means that all UK businesses who employ one or more workers must put them into a workplace pension scheme, if they meet certain criteria. For employers, automatic enrolment brings extra cost and administration. For the first time, employers will be obliged to pay into pensions unless employees opt out. There will be extra administration, involving communicating with staff, dealing with pension providers and satisfying the Pensions Regulator. The process of introducing automatic enrolment into an organisation is not something that can be left to the last minute. Almost all employers are affected. The main exception is a company with only a single employee who is also a director. The range of employers affected, therefore, runs from multi-national companies to a family who employs a nanny. Eligible jobholders must be automatically enrolled into a suitable pension scheme unless they are members of an existing ‘qualifying scheme.’ It cannot be assumed that a current scheme will necessarily be suitable for automatic enrolment, because it may not meet the requirements for payment levels or include an appropriate agreement with the pension provider. Non-eligible jobholders must be offered a pension on the same basis as eligible jobholders, but they must apply to join rather than being automatically enrolled.
Every employer has a ‘staging date’ between 1 October 2012 and 1 February 2018. The ‘staging date’ is determined by the size of the PAYE scheme at 1 April 2012, the PAYE reference number or, for businesses started since 1 April 2012, when they first paid PAYE income. There is no exemption for employers with fewer than five employees, a floor that applied under the now defunct stakeholder pension employer access rules. After the staging date, employees who become eligible jobholders must be automatically enrolled, although they can defer enrolment for up to three months. And every three years an employer must automatically re-enrol those who have chosen to opt out. Because there’s a significant amount of effort involved in assessing the workforce and ensuring that appropriate pension arrangements are in place, the Pensions Regulator recommends that employers start planning for automatic enrolment 12 to 18 months before their staging date. Each employer must have one or more ‘qualifying’ pension schemes. A qualifying scheme must include a formal agreement that the employer will pay at least the minimum contributions, including passing on any from the employees. In addition, employees who are automatically enrolled must not be required to make any decisions, which means there must be a suitable default investment option. From April 2015, the government is planning a maximum charge for members on the default fund under every qualifying pension scheme, equivalent to 0.75% of the value each year. Complying with auto-enrolment obligations is a complex process, and it’s important that businesses develop an action plan; auto-enrolment imposes new duties and, probably, additional costs. There are many decisions to be made and potential pitfalls at every stage. There is then the ongoing process of ensuring that all employees are auto-enrolled as they become eligible and repeating the process every three years for any who have opted out.
To receive a complimentary guide covering Wealth Management, Retirement Planning or Inheritance Tax Planning, contact Scott Symes, on 01202 951227 or 07885 899742, by email email@example.com or visit www.scottsymeswm.co.uk.
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