The Pensions Act 2008 comes into force on 1 October 2012, requiring employers to enrol qualifying employees into a pension scheme.
The employer can use its existing pension scheme if it meets certain criteria, or the new Government National Employment Savings Trust (NEST) Scheme, which is aimed at low to medium earners and smaller employers. Once employees are enrolled and remain active members, employers must make minimum pension contributions for them. The current statutory duty to provide a stakeholder pension scheme will be revoked.
Employees aged 16 to 74 earning between £5,035 and £38,185 (subject to annual review) can opt into the scheme, but those aged 22 or over and earning more than £7,475 will be enrolled automatically. This figure includes wages, bonus, overtime, commission, etc.
What does this mean for employees?
Automatic enrolment will make it harder for people to escape from funding their retirement; however, the scheme is by no means compulsory.
Employees who have been automatically enrolled can opt out permanently or temporarily, opting back in at a later date, but only once in any 12 month period and they must give their employer notice. To discourage employers from providing opt out forms, employees must request the form direct from the pension scheme provider. Employees who opt out will have their contributions refunded and hence will lose benefits accrued on their fund.
These duties will be introduced between October 2012 and September 2016, with larger employers first and smaller employers last. The following dates are subject to confirmation:
• 120,000 employees or more - 1 October 2012
• 50,000 to 119,999 employees - 1 November 2012
• 240 employees to 249 employees - 1 March 2014
• Employers with less than 50 employees have until 1 February 2016.
Duties for Employers
Employers must register with the Pensions Regulator showing that they have an automatic enrolment scheme in place within four months of their staging date, and re-register every three years. They must check that minimum contributions are made to the scheme and that contributions are paid to the pension provider when due. The Pensions Regulator has powers to issue compliance notices and impose penalties.
The success of this scheme remains to be seen but as the pensions deficit grows there can be no doubt that the issue of retirement funding must be addressed.
Birkett Long has an in house team of Independent Financial Advisers who can provide advice with work based pension arrangements.
For assistance with any aspect of employment law contact Reggie Lloyd at Birkett Long LLP on 01206 217347 or reggie.lloyd@birkettlong.co.uk or for assistance with independent financial advice please contact Mike Cracknell on 01206 217309 or mike.cracknell@birkettlong.co.uk
