From October 2012 changes to pensions law involving automatic enrolment into a pension scheme will affect all employers with at least one worker in the UK.

The changes will require employers to:

• Provide a process of Automatic enrolment of certain workers into a pension scheme.

Note:  A ‘worker’ is a wider category than just employees and can include some contractors or agency workers. As a general rule, if you have to pay the national minimum wage to someone, or they are working under an apprenticeship, they are a worker.

• Register with The Pensions Regulator (‘the regulator’)
• Make contributions to the pension scheme on their workers’ behalf
• Provide workers with certain information about the changes and how they will affect them.

The changes will be introduced over 4 years starting in October 2012 and each employer will be allocated a date from when the duties will first apply to them. This will be known as their ‘staging date’. – Small firms will not have to comply with automatic enrolment until 2014 at the earliest.

The staging date will be based on the number of people in the employer’s PAYE scheme with the largest employers having the earliest staging dates. (Employers can check their provisional staging dates on the following web site: www.tpr.gov.uk/staging )

Employers will be allowed some flexibility by choosing to bring forward their staging date by up to three months but they will not be able to choose a date later than the one they were allocated.

Assessing and indentifying the workforce

Employers will need to assess their workforce to see what their duties will be in relation to each of their workers.

Workers who need to be automatically enrolled are called ‘eligible jobholders’ and include workers:

• Aged between 22 and state pension age
• Earning more than the minimum earnings threshold (currently proposed to be £7.475 pa) – The worker’s ‘qualifying earnings’ will include: salary, overtime payments, commission, bonuses, sick pay, maternity, paternity and adoption pay.
• Working, or ordinarily working, in the UK. – The location of the employer is not relevant when considering if a worker is an eligible jobholder. Neither is the workers nationality or length of stay in the UK. What is relevant is whether the worker is working or ordinarily working in the UK.

Workers classified as ‘eligible jobholders’ will need to be automatically enrolled into a pension scheme that meets a number of conditions based on the level of contributions paid or the benefits that they receive. Eligible jobholders may choose to ‘opt out’ of the scheme, but only after they have been automatically enrolled by the employer.

It may be possible for employers who employ short term or seasonal staff to defer auto enrolment of a worker to a pension scheme by introducing a ‘waiting period’ of up to three months.

Choice of pension scheme.

Employers may choose a pension scheme into which workers will be automatically enrolled. This may be  an existing scheme, a new scheme from an approved pension provider or  the National Employment Savings Trust, NEST which has been set up by the Government to ensure that employers, including those that employ low to medium earners, can access pension saving and comply with their automatic enrolment duties.

Whether a scheme an employer uses for automatic enrolment is new or not, it must meet certain criteria set out in legislation.

The scheme cannot:

• Impose barriers, such as probationary periods or age limits for members
• Require staff to make an active choice to join or take other action, e.g. having to sign a form or provide extra information to the scheme themselves, either prior to joining or to retain active membership of the scheme.

Each pension scheme will have its own rules, but all employers will need to provide their scheme with certain information about the person who is being automatically enrolled.

Regulator registration

All employers will need to register on-line with the regulator.

Employer and Worker contributions

The rules of defined contribution (DC) schemes must require the employer to pay an overall minimum contribution of at least 8% of the worker’s qualifying earnings, of which 3% of this contribution must be from the employer.

In most cases, Government tax relief will account for 1% of the total 8%.

Employers who already have a pension scheme can confirm that it is suitable for automatic enrolment by a process called ‘certification’.

Opt-out notices

Workers who have been automatically enrolled have the right to opt-out of the employer’s pension scheme. There is an opt-out period of 1 month, where any deductions made from their salary will be refunded. The worker can choose to cease membership at any time, although they may not be entitled to a cash refund of contributions after the end of the 1-month opt-out period.

To opt-out, workers must give notice via a document called an ‘opt-out notice’ to the employer. These notices will usually only be available from the pension scheme provider and not the employer, so that workers do not feel pressured into opting out.

When employers receive a valid opt-out notice within the 1-month period, they must pay back any contributions deducted from the worker’s pay. Equally, any contributions the employer has made must be refunded to the employer by the pension scheme.

Opt-in or joining requests

As well as automatically enrolling eligible jobholders, employers must also put certain other workers into a pension scheme, if these individuals ask. What the employer will need to do depends on the type of worker.

Certain workers have a right to ‘opt-in’ to an automatic enrolment scheme and the employer is required to arrange this and make employer contributions.

Other workers have a right to ‘join’ any scheme but there is no requirement on the employer to make employer contributions in respect of these workers; although the employer must set up the deduction of the worker’s contributions from pay.

Inducements and prohibited activity

Any worker’s decision to opt-out of a scheme, or stop saving for retirement altogether, must be taken freely and without influence by the employer.

There are safeguards in place intended to protect the rights of individuals to have access to pension provision. These safeguards mean that employers must not take, or fail to take, any action, with the sole or main purpose to attempt to induce a jobholder to opt out of a pension scheme. Equally, an employer must not try to screen out job applicants on grounds relating to potential pension scheme membership, or suggest that a job applicant’s success could depend on whether or not they opt out of a pension scheme.

Maintaining appropriate and accurate records

Employers must keep specific records about their workers and their pension scheme(s). Most of these records must be kept for a minimum of 6 years.

Employers can use electronic or paper filing systems to keep or store any records, as long as they are legible or can be produced in a legible way if the regulator asks to see them.

Keeping accurate records about workers and the pension scheme helps avoid or resolve potential disputes with workers, as well as aide reconciliation of pension contributions.

Employers have a great deal of flexibility to use their existing business documentation (e.g. payroll records) as evidence of keeping a particular record.

An employer must also be able to keep track of the ages and earnings of everyone who works for them at all times. This is important to retain on-going compliance with the requirements.

Providing workers with information about the changes

Employers will need to inform their workers about the changes and how those workers are affected by them.

The specified information must be provided in writing, which can include being sent by email. However, it is not enough just to point individuals to an internet or intranet site, or display a poster in the workplace.

If the specified information requires personal or individual data to be communicated, it should not be included in a generic communication. In these circumstances, the employer is likely to have to write to, or email, each worker individually.

Where the specified information does not require individual data (e.g. the information to a jobholder about their right to opt in), it may be possible to provide the information in a generic communication, such as a joining pack.

The duty is on the employer to provide the right information to the right individual at the right time. Someone acting on the employer’s behalf (such as an Independent Financial Adviser (IFA), provider or benefit consultant) can provide the information, but it remains the employer’s responsibility to make sure it is provided on time and is complete and correct.

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We will be updating this website with more information about workplace pensions and automatic enrolment in the coming months as and when the Pensions Regulator releases further details.