New laws regarding pension auto-enrolment came into force on 30 June 2012, which require all employers in the UK to automatically enrol eligible workers in a pension scheme. Employers will be able to use an occupational pension scheme or personal pension scheme, provided it meets certain statutory requirements. If they wish, they can enrol eligible jobholders in the National Employment Savings Trust (NEST), a central scheme set up by the government.
Employer’s duty to enrol eligible jobholders in an automatic pension enrolment scheme
From its ‘staging date’, an employer must automatically enrol an eligible jobholder as an active member of an automatic enrolment scheme with effect from the date the jobholder becomes eligible, unless he or she is already an active member of the employer’s qualifying scheme.
Employers must automatically enrol jobholders:
- Who are not already in a qualifying pension scheme;
- Are aged 22 or over;
- Are under state pension age;
- Earn more than £9,440 a year for the 2013/2014 tax year (this figure is reviewed every year) and work or usually work in the UK.
Auto enrolment staging dates: when do employers need to start enrolling their workers?
The date workers must be enrolled depends on the size of the company. The following is a guide to the various staging dates:
- Large employers (250+ workers): from October 2012 to February 2014;
- Medium employers (50-249 workers): from 1 April 2014 to 1 April 2015;
- Small employers (49 workers or fewer): from 1 June 2015 to 1 April 2017;
- New employers (established between 1 April 2012 and 30 September 2017): from 1 May 2017 to 1 February 2018.
Employer pension contributions: how much?
The government has set a minimum amount of money that has to be put into a defined contribution scheme by both employers and workers. It starts low and increases gradually over a number of years; employers and workers can contribute more than the minimum if they wish.
The table below gives details of the set minimum percentage that must be contributed in total to defined contribution schemes:
|Year||Employer contribution||Total employer and jobholder contribution (including tax relief)|
|First transitional period: from employer’s staging date to 30 September 2017||
|Second transitional period: from 1 October 2017 to 30 September 2018||
|Steady state period:
1 October 2018 onwards
Opting out of pension auto enrolment
A jobholder will be free to opt out of either type of scheme, once he or she has been automatically enrolled. But while they remain an active member, their employer will be required to pay a minimum level of pension contributions.
If a jobholder opts out within a month from the day they officially become a member of a scheme, they will be treated as if they had never been a member of the pension scheme and any payments made by them to the pension will be refunded. If they choose to opt out after this period, depending on the scheme, the payments already made may not be refunded and will remain in the pension scheme until they retire.
If a worker opts out or stops saving into their employer’s pension scheme but later decides they want to join again, they can do so. The employer has to accept them back once in every 12-month period. If the worker stops paying a second time and then requests to join again within 12 months, the employer does not have to accept them the second time.
What happens if employers do not comply with pension auto enrolment?
Responsibility for complying with the new rules rests with the employer. If an employer does not comply, it will be faced with enforcement action. Enforcement action starts with statutory notices and will be followed by penalty notices, the amount of which will depend on the number of staff in the organisation. Civil action may also be taken through the courts to recover penalties.
If you have questions about any of the issues raised in this article or about employment law in general, please contact us on 0117 904 6000.