Compulsory Pension Reform

Angela Schettino writes:

Compulsory Pension reform – Have you taken the preparatory steps yet?

It takes little investigation to uncover that many employers are unclear about the compulsory changes due to be made to the obligations on employer’s pension provisions and requirement to register with the pensions regulator from October 2012. Our own investigations reflect that many employers across Northern Ireland, and particularly the smaller private firms, have a vague idea that they will need to make changes to their provision or scheme but have, as yet, not taken any preparatory steps given that the changes are being phased from October 2012. 

To be clear, the changes are indeed compulsory and do effect all employers with at least one qualifying employee. The best advice is to act now and make preparations. Whilst the introduction of the change is phased over 5 years, with the largest employers first, employers need to take action well ahead of their ‘staging date’. Staging dates for employers of less than 250 eligible employees are currently subject to consultation. The earliest dates for those with less than 50 employees at present are from June 2015 depending on your PAYE reference number. 

There may well be a reduction in Independent Financial Advisers available after 31.12.2012, due to new rules with regard to qualification levels and fees. Software suppliers may also have limited capability. There is a danger that employers who start this process late will fall into the trap of paying excessive fees to ‘less effective’ suppliers because there is no longer a choice.

We provide a reminder of the key changes and obligations below. The official advice will be to use a reputable financial adviser for guidance around what changes your organisation will need to make and the various options available. The regulator website www.tpr.gov.uk contains all the detailed guidance you will need. 

From October 2012 the Government will phase in introduction of both;

1. auto-enrolment and compulsory employer contributions, and

2. the National Employment Savings Trust (NEST).

There are staged implementation dates, with the largest employers going first. 

At present the staging dates which reflect number of PAYE employees are as shown below, however it should be noted that the Government began consultation on staging dates for employers of less than 250 employees in March 2012. These dates are yet to be confirmed, it is therefore a good idea to sign up for updates on the email service -https://forms.thepensionsregulator.gov.uk/subscribe.aspx 

• Number of employees, >120,000 – 1250 the Earliest Staging Date is 1 October 2012, the Latest Staging Date is 1 September 2013.
• Number of employees, 1249 – 50 the Earliest Staging Date is 1 October 2013, the Latest Staging Date is 1 April 2015.
• Number of employees, <50 the Earliest Staging Date is 1 June 2015, the Latest Staging Date is 1 April 2017.
• New Employers, the Earliest Staging Date is 1 May 2017, the Latest Staging Date is 1 Feb 2018.

If you employed fewer than 50 people (full-time equivalent) on 1 April 2012 and are part of a PAYE scheme with 50 or more people in it, you'll need to use the regulator’s staging date timeline to look up your staging date.

The actual staging date is based on employee numbers at 1 April 2012.

To bring some flexibility you can bring your staging date forward. You can find a list of early staging dates at; www.thepensionsregulator.gov.uk/employers/staging-date-timeline.aspx


What do Employers Have to Do?

All UK employers will have to automatically enrol staff into a qualifying pension scheme who:

• are aged 22 to state pension age
• earn more than the minimum earnings threshold (£5,564 for 2012-2013)- this will be set by the government and may be the same as the income tax personal threshold (reviewed annually in the budget) and
• are not currently in a qualifying pension scheme.

The employer could choose NEST to provide their auto-enrolment scheme or another pension scheme company or choose different providers for different groups of the workforce.

For a scheme to qualify, it must pay a minimum level of contributions. 

The minimum requirements for a Defined Contribution (DC) scheme are:

• Employer’s Staging Date to 30 September 2016 the Employer Min. Contribution* is 1%, the Total Min. Contribution* is 2%.
• Employer’s Staging Date 1 October 2016 to 30 September 2017 the Employer Min. Contribution* is 2%, the Total Min. Contribution* is 5%.
• Employer’s Staging Date to 1 October 2017 Onwards Employer Min. Contribution* is 3%, the Total Min. Contribution* is 8%.

* Percentages relate to qualifying earnings between certain bandings.

The minimum requirements for a Defined Benefit (DB) scheme are based on the jobholders’ entitlement. A DB scheme will meet the requirement if it has been issued with a contracting out certificate by HMRC.

The lowest is 8% of a band of earnings, but the lower and upper levels will change from time to time, probably each year. The employer must contribute at least 3% and can ask employees to pay the remaining amount up to the 8% total. These percentages apply to the employee’s total earnings within the band, so they include overtime and bonuses not just basic pay.


What are Your Duties as an Employer?

In summary, you will be required to:

• make payments into a pension scheme that complies with the auto-enrolment requirements;
  
• auto-enrol or re-enrol all qualifying staff (they can opt out of the scheme if they wish but will need to be re-enrolled approximately every three years);
  
• monitor all earnings to make sure your scheme meets the minimum contribution levels;
  
• collect contributions and forward them, and any necessary supporting information, to your pension scheme provider;
  
• register your auto-enrolment scheme with the Pensions Regulator not later than four months after your staging date, which is the latest date by which you need to have an auto-enrolment scheme. (If you change your pension scheme provider, you will need to register the new scheme with the Pensions Regulator);
  
• provide information about the pension scheme to your employees;
  
• process opt-outs and make refunds;
• keep records (for 6 years);

You Must Not: 

• offer investment advice to your employees about the pension scheme;
  
• discourage employees from joining the scheme;
  
• provide any employee with an opt-out form;
• encourage members to opt out of the scheme;
• employ someone on the condition that they will opt out of the scheme; 

A Note About Information Provision to Different Employee Groups;

• Eligible jobholders: You must tell them what automatic enrolment means to them and their right to opt out;
• Non Eligible jobholders: You must tell them about their right to opt in to an automatic enrolment scheme;
  
• Entitled Workers: You must tell them of their right to join a pension scheme.
• Information provided must be specific to the employee and not generic*

Next Steps

It is important to allow plenty of time to prepare, we suggest starting preparations now, if you haven’t already done so;

• Check when your staging date is likely to be. Go to the very comprehensive information on the Pensions Regulator’s site and review your obligations available to view at http://www.thepensionsregulator.gov.uk 
  
• Talk to a reputable financial adviser about your concerns and requirements.