Pension auto-enrolment – are YOU ready?
Pension auto-enrolment – are YOU ready?
The pension reforms came into force on 30th June 2012 and require all UK employers to auto-enrol eligible workers in a pension scheme and make a mandatory minimum contribution. As the reforms are being implement gradually, you may not become subject to auto-enrolment duties for some time, but you do need to start taking some action now in order to prepare.
When will the changes affect you?
The date from which the new duties will apply is known as the staging date. You will receive a letter confirming your staging date along with basic information about your employer duties from The Pension Regulator one year in advance. If you wish to check your staging date yourself you can use the Staging Date Calculator which can be found by following this link: http://www.thepensionsregulator.gov.uk/employers/tools/staging-date.aspx
As an employer, what do you need to do?
The auto-enrolment responsibilities for employers are complex with harsh penalties for non-compliance. As an employer you are responsible for:
- Assessing your workforce in order to identify which of your workers must be automatically enrolled into a pension scheme and make mandatory contributions;
- Identifying a suitable pension scheme if your business does not already have an existing pension scheme in place which is complaint;
- For those who are entitled to be automatically enrolled, you must inform them that they are to be auto-enrolled, the date on which they will be auto-enrolled, the contact details of the pension scheme administrator, the value of employer and worker contributions and information about the right to opt out;
- Identifying those who are not entitled to be automatically enrolled but do meet some of the criteria. These workers will be non-eligible workers however they have the right to join a scheme and receive mandatory employer contributions if they wish. You have a duty to write to these workers and inform them of their rights to request that they join a scheme;
- Identifying those who do not meet any of the criteria for automatic enrolment. Even those these workers have no automatic right to be enrolled into a pension scheme, a worker can give his employer notice that he wishes to join a registered pension scheme. However such scheme does not need to be an automatic enrolment scheme nor do minimum employer contributions have to be made. As an employer these workers must be informed of their right to opt into such a pension scheme; and
- Amending your contracts of employment to incorporate new clauses regarding pension auto-enrolment and data protection. As the personal data of workers will be provided to the pension scheme administrator, workers need to provide their consent to the transmission of such data.
Can employees opt-out?
A worker who has been automatically enrolled into a pension scheme does have a statutory right to opt-out of a pension scheme. However if the worker later decides that they wish to be enrolled into a scheme, he does have the right to change their mind and join a scheme at a later date. The worker can do this by giving to you notice requiring you to arrange for the worker to become a member of an automatic-enrolment scheme. The worker can only do this once in a 12 month period. However a worker already in a qualifying pension scheme does not have a statutory right to opt out. The worker will have to cease membership in accordance with the scheme rules.
As an employer, you will be required to automatically re-enrol eligible workers every 3 years after they first become subject to the statutory duties to auto-enrol.
What you cannot do as an employer
As an employer, you must not encourage workers to opt out of the qualifying pension scheme. You cannot offer financial inducements to workers to opt out of a pension scheme. Therefore offering higher salaries or offering bonuses in exchange for opting out of the scheme membership would count as inducement. It does not matter whether the inducement successfully persuades the worker to opt out or cease membership without becoming an active member of another scheme, it is the action taken by you as the employer with a view to inducing a worker to opt out or cease membership that would be in breach of the law.
In addition, as an employer you must not have recruitment practices that will benefit job applicants who indicate that they are prepared to opt out. For instance, an advert cannot state that an applicant who wishes to join a pension scheme need not apply nor can you ask a job applicant at interview whether they plan to opt out of auto-enrolment. In addition, the proposed terms of employment cannot stipulate or imply that the offer is conditional on the applicant agreeing to opt out.
Further, you cannot treat a worker unfairly or put them at a disadvantage because of auto-enrolment. Therefore pay cuts, denying a worker a promotion or other training opportunities as they have not opted out of the scheme or removal of some other benefit in order to off- set the cost of auto-enrolment would count as unlawful detriment.
How we can help
It is likely that you will need the help of an expert to guide you through the changes. It is clear that there is a lot of work to do to meet your employer duties and it’s important that you start this work as early as possible. By starting to plan now, we can help you to mitigate the costs and minimise the disruption to your business.