Pension Reform - Auto-enrolment

This guide gives information on the new employers duties introduced by the Pensions Act 2008.

The Pensions Act 2008 - Pension Reform

The Pensions Act 2008 contains a number of measures aimed at encouraging greater private pension saving. From 2012 all eligible workers, who are not already in a good quality workplace scheme, will be automatically enrolled into either their employers' pension scheme or a new savings vehicle, NEST (National Employment Savings Trust), formerly known as personal accounts. To encourage participation, employees' pension contributions will be supplemented by contributions from employers and tax relief.

The overall aim of the government's pension reform strategy is to get more people saving for retirement. All employers in the UK, small and large, will need to take action to comply with their new responsibilities under the Pensions Act 2008.

From 1 October 2012 (subject to the employer's own introduction date), all eligible workers will have to be auto-enrolled into a qualifying pension scheme. Employers can choose the qualifying scheme they use, which could include NEST (the National Employment Savings Trust) . Each qualifying scheme must meet minimum standards in respect of the benefits it provides or the amount of contributions paid to it. The scheme must also provide auto-enrolment for all eligible workers and for all new workers when they become eligible.

How will each company's auto-enrolment date be set?

The new employer responsibilities start from October 2012 and will be staged in over four years dependent on the number of employees the company has.

Employers will have two main responsibilities:

· To automatically enrol all eligible jobholders into a pension scheme which meets certain criteria, and

· The total minimum contribution made to the pension scheme (if it's a money purchase) must be 8%, with employers paying at least 3%.

Opting Out:

The jobholder will have the right to opt out from the scheme within a month of auto-enrolment. Their contributions will be refunded and the employer doesn't have to make any contributions. However, the jobholder will be auto-enrolled again every three years to give them an opportunity to rejoin the scheme at a later date.

If an employee decides to opt out, the employer must follow the prescribed opt out process which is set out in the regulations. It's illegal for employers to encourage employees to opt out or give up active membership of the pension scheme - known as inducement - for example by offering them cash or any other benefit.

An eligible worker is an employee aged between 22 and state pension age and earning above the income tax personal allowance (£7,475 in 2011/12). Contributions become payable on earnings over the National Insurance primary threshold.

Qualifying earnings are band of earnings between £5,715 and £38,185 (2010/11). Earnings for this purpose include salary and a number of variable payments such as bonuses, overtime, commission, shift allowances and some statutory payments, for example Statutory Maternity Pay.

Minimum contributions are 8% of qualifying earnings, of which at least 3% must be paid by the employer. Any balance is payable by the employee and will include tax relief from the government.

Employer and employee contributions:

Employers will be required to pay at least 3% of qualifying earnings for those jobholders who don't choose to opt out. They can choose to pay more but the total contributions from employers and jobholders must be at least 8% of qualifying earnings.

There will be three phases of contributions as shown below.

For companies with existing pension arrangements, it may be that the existing scheme will meet the requirements under the new regulations. Employers should seek advice early to establish whether a new scheme is required or the existing scheme needs amending.

Temporary, fixed-term, part-time and foreign workers?

A worker is defined as an individual who has entered into or works under a contract of employment or any other contract to do work or perform services personally for the other contracting party. It doesn't matter whether the contract is in writing or implied. An individual who contracts to do work for a customer or client of their business undertaking or profession is specifically excluded (for example, an employer company contracts with a trader business to provide certain services or contracts with a professional firm, such as external lawyers, to provide legal advice).

This therefore covers full-time, part-time, fixed-term/temporary and agency workers, where there's a contract with the employer to do work for them (not as part of a business relationship).

There are special provisions in the Pensions Act 2008 for agency workers who don't have a worker's contract with either the principal or agency, as employer, and also for company directors, the armed forces, those in Crown employment or working offshore or on vessels, and certain others.

A company director isn't a worker unless they're employed by the company under a contract of employment, and at least one other person is employed. (In other words, one-person companies aren't included in the legislation.)

Regulation - The Pensions Regulator

Employers will have to 'register' (likely to be online) to tell the Pensions Regulator which pension scheme they're using to comply with their duties.

All employers will have to comply with pensions reform legislation. The Pensions Regulator will monitor employers to make sure they comply with the legislation. Measures can be taken against employers or third parties where there has been a breach. These include the issue of a compliance notice or unpaid contributions notice, which, if not complied with, may be followed by the issue of a fixed or escalating penalty notice.

National Employment Savings Trust (NEST)

This is aimed at low-to-medium earners who don't have access to a pension scheme through their employer, and is intended to complement existing workplace pension provision. It will be a qualifying scheme under the government's reforms and will be set up as a large trust-based occupational pension scheme, with employers' and members' panels to represent their interests. It will be run by the NEST Corporation, made up of people appointed by the government.

NEST will be a very simple scheme, which means there will be limited fund choices. It will include a default investment fund plus a small number of additional investment options. At retirement, an open market annuity may be the only choice. There will be a maximum amount which can be paid into NEST by, or on behalf of, a member. This is likely to be around £5,000 a year. It's possible to pay higher contributions to private pension schemes.

Auto-enrolment Solutions from Alexander Price Ltd.

Over recent months we have been contacting local companies, writing editorials and sending out information about the forthcoming auto-enrolment (Pension Reform) which will become law next year.

Until now, whilst our main objective has been to provide information and inform local businesses of the regulations and employer duties associated with the new legislation, we have also been working hard to provide a solution for businesses to administer and manage the requirements. We are now pleased to officially launch Auto Enrolment Solutions.

Auto Enrolment Solutions available through Alexander Price, can now provide the necessary tools under one market leading online solution, ensuring your business is fully compliant with the employer duties of auto-enrolment, as well as offering many other key functions including flexible benefits and payroll.

2012 is fast approaching and Alexander Price Ltd recommends ALL employers start seriously considering the implications of the legislation and the potential impact of the additional pension costs in their business planning. Preparation beforehand will ensure that the additional admin and financial burdens are identified well in advance and are budgeted for as appropriate.

At this point the top priorities for employers should be to:

· Identify the likely cost impact of auto-enrolment and the timing for your business.

· Consider the options available for mitigating this, including a review of your existing pension/staff benefits arrangements if applicable.

· Consider how the new regulations will be administered within your business and by whom.

· Understand the employer's duties and what is expected from both employer and employee.

Remember, you are not alone. As a business we also have to comply with the regulations and as such we know that early planning is essential.

For your free without obligation meeting to discuss how your business will be affected please call Jeremy Leslie-Smith on 01202 840900 or email This e-mail address is being protected from spambots. You need JavaScript enabled to view it