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2012 Workplace pensions auto enrolment

From 1 October 2012, employers will have a legal obligation to automatically enrol "eligible jobholders" into a workplace pension. Employers can either use NEST (National Employment Savings Trust), the government's workplace pension scheme or their own existing pension schemes, provided they meet certain relevant requirements.

There will be a "staging date" from October 2012 to 2016, for employers to meet the requirements, starting with the largest employers. This will be based broadly on the number of people in your PAYE scheme. See Related links to check your likely staging date.

Who are "eligible jobholders"?

These are workers who:
  •  earn more than the minimum earnings threshold (£7,475 in 2011/12)
  •  are aged between 22 and state pension age; and
  •  work in the UK under a contract.
This includes temporary workers and directors under a service contract but not non-executive directors. Agency workers are eligible jobholders if the employer is responsible for paying the agency worker.

Contributions under NEST

Contributions will be phased in over a period of five years for employers and employees. Employers must contribute at least 3% of a worker's gross qualifying earnings. This does not include any earnings above the upper earnings threshold (currently £33,540). Qualifying earnings include salary, wages, commission, bonuses, overtime, statutory sick pay and statutory maternity, paternity and adoption pay.

Employees must contribute a minimum of 4% of qualifying earnings. They will also receive 1% tax relief, resulting in a total of a minimum of 8% combined contribution, together with the employer's contribution.

Self certification

If an employer wishes to use its own pension scheme, rather than NEST, it must satisfy the relevant requirements for a qualifying scheme. Defined benefit ("DB") schemes have to be certified by the actuary and the employer. We can advise further on the relevant requirements, which depend on how your scheme is structured.

For a defined contribution ("DC") scheme that makes contributions based on "pensionable pay" rather than "qualifying earnings", three self-certification options are available. They are:
  •  9% of pensionable pay (including at least 4% from the employer)
  •  8% of pensionable pay (including at least 3% from the employer) where pensionable pay is 85% of total pay;
  •  7% of pensionable pay (including at least 3% from the employer) where pensionable pay is all pay.
The requirements are subject to consultation.

What else must I do?

You need to:
  •  provide a qualifying scheme for your workers;
  •  automatically enroll all eligible jobholders into the scheme, though you can wait three months before new jobholders are enrolled;
  •  tell them you have enrolled them and given them the right to opt out if they want;
  •  register with the Pensions Regulator details of your qualifying scheme and the number of people who have automatically enrolled; and
  •  pay employer contributions.
Note that jobholders who have opted out will be automatically re-enrolled every three years during a six-month window.

Can I avoid this?

Employers cannot induce workers to opt out of a qualifying pension scheme or make job offers conditional on opting out. The Pensions Regulator will police employer compliance. Large employers that do not comply could be liable for escalating penalties of £10,000 a day with criminal penalties for "wilful" failure to comply.

What should I do next?

  •  Plan ahead to check when your staging date will be and consider the impact on payroll costs;
  •  Check whether your current pension scheme meets the requirements for a qualifying pension scheme and if not, consider whether to use NEST or whether you wish to amend your current pension scheme;
  •  Amend your payroll to comply with increased or new pension contributions.
  •  Please contact Sasha Butterworth or a member of the TLT Pensions Team for further advice and help.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at April 2012. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.

TLT LLP is a limited liability partnership registered in England & Wales number OC 308658 whose registered office is at One Redcliff Street, Bristol BS1 6TP England. A list of members (all of whom are solicitors or lawyers) can be inspected by visiting the People section of this website. TLT LLP is authorised and regulated by the Solicitors Regulation Authority under number 406297.

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