With effect from October 2012, the biggest UK employers will automatically start enrolling employees into new workplace pensions as part of a government scheme to address the widening pension deficit.
Stephanie Whitchurch, an experienced employment lawyer at Tallents Solicitors in Newark, explains what this means for employers and employees.
The scheme has been created by the government to try and ensure that as many people as possible will be in a workplace pension scheme. Known as ‘auto-enrolment’, the minimum contribution will be 2% of qualifying earnings, with a minimum of 1% paid by the employer. By late 2018, the minimum pension contribution will have risen to 8%, with the employer contributing a minimum of 3%.
Auto-enrolment is particularly aimed at lower paid workers who are most likely not to be in a pension scheme at present, or workers in smaller businesses who do not have access to a pension scheme.
Under current guidelines employers will have to enroll workers in the UK who are aged between 22 and the state pension age; who earn more than the minimum qualifying threshold of £8,105 and who aren’t already in a pension scheme. Any workers not in this group will have the right to actively opt-in to the scheme.
Not every company will be affected by auto-enrolment immediately as the implementation of the scheme is staggered over five years, with Britain’s largest employers, likely to include Tesco, Sainsbury’s, Asda and Morrisons, taking part in the first wave.
Smaller businesses have been allowed a longer period of time to comply with the scheme. For example, if you employ less than 30 people you currently won’t have to auto-enroll workers until at least 2015 as it is being phased in from then until 2017, but the business can choose to join the scheme earlier if it wishes. Eventually, every UK business who employs at least one person will have to run a workplace pension.
Employers will be obliged to provide eligible workers with prescribed information in writing including the date of their enrollment, which scheme they will be auto-enrolled into, what percentage of their salary will be put into their pension and how they can opt-out.
The pension scheme is automatic, but as it is not mandatory, workers will have the right to opt-out of the scheme. However, they will have to actively make this decision within a limited time-frame.
Employers should take steps to ensure they understand when their business will have to auto-enroll workers into the new pension scheme, as The Pensions Regulator can issue fixed and escalating penalty notices of up to £10,000 per day to businesses that it feels are deliberately seeking to avoid meeting the scheme requirements.
It will be worth speaking to a legal professional, sooner rather than later, to understand and ensure you comply with your legal obligations.