Employers have less than one month to prepare for compulsory workplace pensions.
From October large employers will be compelled to start enrolling staff into workplace pension schemes.
Employers will have to enrol workers into a workplace pension if you:
- 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
- work in the UK
It is thought that as many as 10 million UK workers who do not already have a pension, are aged 22 or over, are under state pension age and earn more than £8,105 per annum will eventually be included in such schemes for the first time, said Catherine Wilson, partner at law firm Thomas Eggar, in a recent analysis on HRZone.co.uk.
Although workers can opt out of the new pensions, they and their employers should review their pension arrangements regularly. Employers who already provide work pension schemes that meet government standards will not need to do anything else.
The exact start date for a particular organisation to become involved in auto-enrolment depends on the number of UK-based staff that they employ.
Those with more than 120,000 staff will start this October, with further roll-out based on size taking place over the next few years. The last ones to join will be companies with fewer than 30 employees. They have until April 2017 to prepare themselves.
Wilson said that employers can prepare for the new pensions by:
- Deciding which pension scheme they wish their workers to be automatically enrolled into. Options include existing schemes or alternatives such as the National Employment Savings Trust or NEST
- Calculating "qualifying earnings" levels. Auto enrolment is based on employers and employees making a certain percentage contribution to a pension fund based on earnings. Not all payment qualifies as "earnings", however, and there may be particular difficulties if an employee's income tends to vary
- Remembering that employers can postpone the start of auto enrolment for up to three months. Such a scenario may be worth considering if they need extra time to integrate the new rules into their payroll system
- Start keeping additional records that will be legally required for compliance purposes. These can take either electronic or paper form, but must be legible and easily reproduced. In some instances, additional information such as the birth dates of casual workers may have to be gathered, while in others, data cleansing may be required
- Review current terms and conditions as well as any existing pension documentation as the information could be out-of-date
- Audit current pension membership records to identify "specific cases" such as staff that already have personalised tax arrangements, in order to avoid potential costly disputes.
The pensions auto-enrolment initiative has been causing considerable uncertainty and doubt within the pensions world and wider industry. Amid numerous warnings that businesses are underprepared, the Association of British Insurers (ABI) complained to the Financial Services Authority and the Pensions Regulator that more needed to be done to clarify costs and charges for employees.
Darren Philp policy director at the National Association of Pension Funds (NAPF) commented: “New rules could see up to 8m people automatically enrolled into a pension, many for the first time. If they’re to stick with that pension then they must be able to gauge whether they’re getting a good deal.
“The current regulatory system causes confusion, and having two regulators for workplace pensions does not help. Ultimately the goal is a clear and stable environment that delivers the best pensions possible.”
The NAPF has responded with its own simplified guides covering:
- How to plan a communications campaign to inform staff about the new rules.
- What employees need to be told, and the timeframe for doing this.
- Issues to consider once auto-enrolment is implemented.
- Dealing with fluctuations in pay.
- Key steps to prepare for auto-enrolment.
Further information on pensions auto-enrolment
