Auto enrolment and new employer pension duties

The new duties will apply to all employers in the United Kingdom. They will be formally implemented over five years starting on 1 October 2012, with larger employers being affected before smaller employers and new businesses.

From the date an employer becomes subject to the new duties – referred to as its “staging date” – the employer must automatically enrol its eligible jobholders in a qualifying pension scheme, unless a job holder is already an active member of the employer’s qualifying scheme. An employer can use an occupational or personal pension scheme if it meets certain quality requirements or else enroll jobholders in “NEST”, the central government established scheme.

Staging dates for “small businesses” – meaning employers with fewer than 250 employees – have been delayed. Broadly, all employers with 250 or more employees will have staging dates running between 1 October 2012 and 1 February 2014 as originally planned. But employers with fewer than 250 employees will be assigned staging dates running from 1 April 2014 to 1 April 2017.

Employers must as one of their first steps assess their workforce and the corresponding auto-enrolment duties owed to their workers.

Once it has passed its staging date, an employer will be required to automatically enroll any eligible jobholders in an automatic enrollment scheme, unless they are already active members of the employer’s qualifying scheme. An eligible jobholder who is auto-enrolled will have the right to opt out of the scheme within one month.

For eligible jobholders who are auto-enrolled, and who do not opt out, the employer will be obliged to pay mandatory minimum contributions to a defined contribution scheme or offer a minimum level of benefits in a defined benefit scheme.

Initially, the overall minimum contribution requirements for defined contribution schemes will be as follows:-

Year

Employer

Contribution

Total employer and jobholder contribution (including tax relief)

First transitional period: from employer’s staging date to 30 September 2017

1%

2%

Second transitional period: from 1 October 2017 to 30 September 2018

2%

5%

Steady state period: 1 October 2018 onwards

3%

8%

Once it is subject to the new duties, an employer will be obliged to continually assess its workforce to check the eligibility status of its workers.

The key questions include:

How will an employer meet its core auto-enrolment duty? If an employer operates an existing scheme, will this scheme be used for auto-enrolment ?

If an existing scheme is to be used (whether occupational or personal), does it satisfy the quality requirements? As a general rule, an employer with a defined benefit (DB) scheme will need to obtain confirmation of this from the scheme actuary. Employers with defined contribution schemes will need to ensure the minimum contribution requirements are met.

If an employer plans to use its defined contribution or group personal scheme, will it take advantage of the advance self-certification regime? If so, how will this be done?

If an employer plans to use its existing occupational pension scheme, will any rule changes be required (for example relating to eligibility or waiting periods)?

If an employer currently sponsors an occupational scheme with a waiting period, should it consider using two schemes in future? “NEST” could be used as a “nursery” scheme for new joiners.

The Pension Regulator will play a central role in monitoring and enforcing employers’ compliance with the new auto-enrolment duties. It will have the power to make orders and levy fines on employers who do not comply with the auto-enrollment regime.

This is only a brief summary of employer’s new pension obligations. If you require any further assistance or advice please contact Nick Smith Partner and Head of Employment at Mincoffs Solicitors LLP – Direct Dial 0191 2127739 – Email – nsmith@mincoffs.co.uk