Pensions update - auto-enrolment
A delay in the roll out of auto-enrolment into pension schemes for firms with fewer than 250 employees has been announced, along with a delay in the increase of employer contribution rates.
What is auto-enrolment?
From October 2012 employers will be required to enrol “eligible jobholders” – employees over age 22, working in the UK and with income levels above the income tax threshold (currently £7,475) into a qualifying pension scheme and to make a minimum contribution to that scheme on their behalf. This is being implemented over a number of years on a monthly basis, dependent upon the number of employees. For example, only those employers who employ at least 120,000 employees will have a ‘staging date’ - that is the date on which they will have to implement auto-enrolment - of October 2012.
Firms who employ between 50 and 249 employees will have their staging date delayed by a year to 1 April, 2015. Firms who employee fewer than 50 employees will not be required to implement the scheme before May 2015.
The increase in employer contribution rates from 1% to 2% has been delayed by a year to 1 October 2017 and the increase to 3% will not now take place until 1 October 2018.
Why are my responsibilities as an employer?
- To enrol all eligible jobholders, who are not already members of a qualifying scheme into a qualifying scheme
- To pay the correct amount of employer contributions to a qualifying scheme
- To provide the requisite information regarding pension arrangements and employer duties
- To keep records
- To register with the Pensions Regulator
- To provide the prescribed information regarding pension arrangements
- To comply with the safeguards designed to protect employees’ rights.
What types of pension scheme qualify?
As long as the schemes are either occupational schemes or personal pension schemes and are registered with HM Revenue & Customs employers can use new or existing pension schemes. It will also be possible to use the National Employment Savings Trust (“NEST”).
NEST is a pension scheme designed to meet the employer’s responsibilities under auto-enrolment. It will be low cost and available to all employers. It will however have limited investment choices and may not be suitable for high earners or those individuals requiring a wide range of fund choices.
Penalties for non-compliance
The Pensions Regulator is in charge of enforcement. Should employers fail to comply with auto-enrolment the sanctions available to the Pensions Regulator include both fines and imprisonment.
Auto-enrolment imposes a number of duties on employers, not only in making financial contributions to a pension scheme but also in keeping records. As there are penalties for breach of these duties larger employers should already be looking to put a scheme in place.
In the Resources section below are links to a calculator which will confirm staging dates and a NEST pension guide which is available to download.
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