The Pensions Act 2008 introduced a requirement for employers to automatically enrol certain workers into a pension scheme, unless they are already members of a qualifying scheme. Auto-enrolment is being introduced in gradual stages, with the date an employer must implement it – the ‘staging date’ – being determined by the number of people in its PAYE scheme on 1 April 2012. Employers with 120,000 or more eligible workers have been subject to the requirement since 1 October 2012. It currently applies to all employers with 1,250 or more workers, then extends to those with 800 or more workers from 1 October 2013 and 500 or more workers from 1 November 2013. By 1 July 2014, employers with 62 or more workers will be subject to the requirement. Automatic enrolment will have been extended to all employers by 2018.
The Pensions Regulator will contact employers between six months and one year before their staging date.
The duty to auto-enrol a worker into a pension scheme applies to all workers who:
• are aged 22 or more but below the stage pension age;
• earn more than £9,440 (the personal allowance for Income Tax for 2013/2014); and
• are contracted to work in the UK.
The earnings thresholds for automatic enrolment are reviewed annually by the Department for Work and Pensions. The contributions made must total at least 8 per cent of the eligible worker’s ‘qualifying earnings’. This comprises a contribution of 3 per cent from the employer and 4 per cent from the worker, the remaining 1 per cent being the result of tax relief on the contribution. To give workers time to adjust to making contributions, however, lower contribution requirements apply until 1 October 2018.
Employers are required to tell workers what type of scheme has been chosen and inform them that they have the right to opt out. They must also register details of the scheme with the Pensions Regulator. Workers who opt out must be automatically re-enrolled every three years.
An employer can bring forward the staging date if desired, and can defer it for up to three months. In the latter case, however, the employer must still be able to arrange contributions to the scheme for employees who have specifically opted in.
Employers must keep most records for a period of six years, although those relating to opting out need only be kept for four years.
The Pensions Regulator recently confirmed that it has issued a compliance notice to an employer which had not complied with the requirements. It has also issued warning notices of a less formal nature to more than three dozen employers.
Further information can be found on the website of the Pensions Regulator.