From 1 October 2012, new laws will come into force under the Pensions Act 2008 as amended by Pensions Act 2011. The aim of the change is to help more people have another income, on top of the State Pension, when they retire and to make it easier for people to start saving.
This will mean that every employer in the UK will have to automatically enrol certain eligible workers (‘jobholders’) into a workplace pension scheme and pay minimum contributions into the scheme. The Department for Work and Pensions will provide each employer with a date from which the changes will have to be in place. This is known as ‘staging dates’ and is broadly based on the number of employees.
An eligible jobholder is a worker who:
- works in the UK under a contract; and
- are aged 22 or over and are under State Pension age; and
- are paid qualifying earnings that exceed the ‘earnings trigger’ in a relevant pay reference period (currently £8,105 gross – subject to change); and
- are not already in a qualifying workplace pension scheme.
Employers with an automatic enrolment duty will need to choose a pension scheme they can use for automatic enrolment. They will also have to register with the regulator (which will be an online process) and they will also have a duty to provide certain information to all of their workers even if they are classed as a ‘non-eligible jobholder’ or an ‘entitled worker’.
Payments into the pension scheme will be made not only by the employer but also by the eligible jobholder. The total combined contribution will be a minimum of 8%. An employer must contribute at least 3% of the eligible jobholder’s earnings and the remainder will be paid by the eligible jobholder. For most eligible jobholders, they will receive a contribution from the government in the form of tax relief. This means that some of their money that would have gone to the government as tax will be paid into their pension instead.
Eligible jobholders will have the right to ‘opt out’ of the scheme should they wish to do so but only after they have been enrolled. An employer must not encourage workers to opt out of the qualifying pension scheme, have recruitment practices that will benefit job applicants who indicate they are prepared to opt out or treat a worker unfairly or put them at a disadvantage because of automatic enrolment.
With only 5 months to go, we recommend all employers to take this opportunity now to plan when and how they will assess whether they have ‘eligible jobholders’ in their workforce, plan when they might need their pension scheme in place and to budget for these changes.
Feel free to contact us at FrontRow Legal to discuss how the new pension laws will affect you either as an employer or as an employee.