New legislation that came into effect in October 2012 will require all employers to automatically enrol their employees into a pension scheme and pay a minimum contribution towards the pension pot. This will place an extra financial burden on employers, but is being championed by the government in order to encourage employees to save for their retirement.

The current position is that most employers must provide their employees access to a stakeholder pension scheme, but there is currently no obligation for them to make any contributions to it.

These new rules are being rolled out gradually, with the largest organisations needing to comply first. However, it is envisaged that by 1st February 2018 all employers in the UK should have auto-enrolment arrangements in place.

In due course all employers will be contacted by the regulator and made aware of the date from which these new duties will apply to them (the automatic enrolment date or AED). Employers will be required to register with the regulator 4 months before their AED.

What will employers have to do?

Once the employer has been told its AED, they must make arrangements to automatically enrol all of their eligible jobholders into an “Automatic Enrolment Scheme” unless they are already members of a “Qualifying Scheme”.

The employer will also be required to make minimum contributions to the scheme on behalf of each of its employees, equal to 3% of the employee’s annual earnings.

What is a Qualifying Scheme?

This is either an occupational pension scheme or a personal pension scheme which complies with the requirements set out in the Pensions Act 2008. It is likely that most schemes currently offered by employers will be classed as Qualifying Schemes, but legal advice should be sought to ensure that this is the case.

What is an Automatic Enrolment Scheme?

To count as such a scheme it must:

• be a Qualifying Scheme that is established in the UK or EEA; and
• not restrict entry or require a new joiner to make a choice or provide information in order to become an active member.

The government is offering the National Employment Savings Trust, or NEST pensions, as a simple low cost option. NESTs will be available to all employers. Further details about NESTs can be found by following the web links below.

Who must be enrolled?

Employees which must be enrolled in the scheme include those who:

• are not already in a pension at work
• are aged 22 or over
• are under State Pension age
• earn more than £8,105.00 a year

The scheme may also apply to other workers who are not classed as employees, and employers should check each individual’s specific circumstances to see whether this is the case.

What information must employers give their employees?

An employer will be required to provide their employee with information about the Auto-Enrolment Scheme. This includes:

• a statement that the jobholder has been or will be automatically enrolled into a pension scheme, and the date that this will take place;
• the name and contact details of the scheme with which the employer is or will become an active member;
• the amount of contributions that will be payable to the scheme by the employer and the employee in any relevant period, and a statement that the employee’s contributions to the scheme will be deducted from their pensionable pay;
• a statement that the employee has a right to opt out of the scheme, and details of how this can be done and its implications; and
• details about where to obtain further information about pensions and saving for retirement.

What information must employers give to the pension scheme provider?

The employer must provide the pension scheme with the employee’s, name, date of birth, postal address, gender, National Insurance number, and the date that they are due to be automatically enrolled.

They must also provide the following additional information unless the pension provider tells the employer that they do not need it:

• the employee’s gross earnings;
• the amount that the employer will contribute to the scheme;
• the employer’s postal address; and
• the employee’s individual work and personal email addresses (if they have them).

Practical steps to prepare for the new rules?

It is likely that most small to medium sized businesses will not be affected by the rules for at least 3 to 5 years. However, employers should ensure that they are aware of the changes and how they will affect their business. This will allow them to make provision for the additional pension contributions that will be required, and re-organise their business structure and strategy to accommodate this extra financial burden.

Further details about auto-enrolment schemes can also be found from the following sources:

http://www.direct.gov.uk/en/Pensionsandretirementplanning/index.htm
http://www.autoenrolment.info/home.html  

Ansons Solicitors act in relation to all aspects of employment law. If you have any queries with regards to your obligations under the auto-enrolment scheme, or any other employment issue please contact Martin de Ridder or Adam Pike at mderidder@ansonsllp.com or apike@ansonsllp.com