Workplace pensions auto-enrolment is here - are your prepared?

Thanks to betterment in living standards, technology and radical advances in healthcare we are all living longer. That’s the good news. The bad news is that with great expectations of pensions yet poorer returns, we may well be very disappointed with life in old age. Indeed the problems created by the interaction of our longevity and the state rolling back what it can pay for means that the government is forcing the pension landscape to change. According to Heather Chandler, a partner in the pensions team at Shoosmiths LLP, the government has for some time been concerned that people are not saving enough for their retirement. “The government has moved from the concept of employees choosing to join a pension scheme to one of automatic enrolment. Since October 2012, larger businesses have been required to automatically enrol eligible employees into a pension scheme and pay a minimum level of pension contributions for each employee. By February 2018, every employer, no matter how small, will be subject to the same obligations,” says Chandler. Graham Vidler, director or communications and engagement at NEST, a low-cost pensions auto-enroller run by the government, echoes Heather’s comments: “Workplace pension law has changed, which means employers will need to give their workers access to a workplace pension scheme that meets certain legal standards.” Staging dates “Generally speaking,” says Heather, “employers with between 50 and 249 employees will have staging dates (to join auto-enrolment) between April 2014 and April 2015. Employers with fewer than 50 employees will be subject to the requirements between April 2015 and April 2017. New businesses have staging dates at the end of the timetable.” The Pensions Regulator will notify every business of its staging dates. Following their staging date, they must register with the Regulator. Penalties follow from non-compliance. Not everyone is covered Those covered by the auto-enrolment rules include permanent, fixed-term and temporary employees, as well as agency workers. The self-employed will not be subject to the requirements. Employees already enrolled into a qualifying scheme through their workplace will remain in that scheme and the duty of auto-enrolment will not apply in respect of them. According to Graham, only those that trade as a sole trader and who do not employ anybody else, are unaffected by the changes. “However,” he adds, “sole traders may decide to take advantage of a scheme like NEST so that they can put something away for the future while getting tax relief.” Workers fall into different categories depending on age and earnings, says Heather, and the obligations on employers differ accordingly. “Employees between age 22 and state pension age, who earn over the income tax threshold are ‘eligible jobholders’ who must be automatically enrolled into a scheme at the staging date (or on later joining the business). The employer is required to pay contributions into the pension scheme in respect of these employees.” “However, those earning below the income tax threshold but above the lower earnings limit, and those earning above the lower earnings limit but who do not meet the age criteria, will be able to opt into the scheme should they wish and the employer must also pay contributions for these employees if they do opt in,” says Heather. What if employees do not want to be enrolled? Clearly there will be some employees who, for whatever reason, do not want to be part of an automatic enrolment pension scheme. For them the process demands that they must first be automatically enrolled into the scheme before being allowed to opt out. They must then be automatically re-enrolled every three years. Finding a scheme to join With the background established, the question turns to the pragmatic implementation of the new system and there are a number of options available. A firm can use an existing occupational or personal pension scheme if it meets certain statutory requirements; set up a new scheme; or enrol employees in the National Employment Savings Trust (NEST), a new central scheme set up by the government. Says Heather“if businesses want to use an existing scheme, they should check the regulator’s guidance or seek legal advice on whether it meets the quality requirements.” https://bit.ly/1etn3fY. Heather is keen to stress that here are certain safeguards imposed by the legislation to protect employees: “Businesses must not encourage employees to opt out of a scheme and must not treat workers unfairly, or dismiss them for a reason relating to membership of an auto-enrolment scheme. In addition, businesses must not screen job applicants on the basis of how likely they are to opt in or out of the pension scheme.” Start soon Firms would be well advised to plan ahead to ensure that their systems can cope with the changes, and to allow time to work with pension providers who may impose their own conditions or timescales or may indeed decline further business at some point before 2018. The Pensions Regulator suggests businesses allow 12-18 months to prepare for auto-enrolment. Non-compliance is not an option For businesses that get it wrong the Pensions Regulator will generally work with them to ensure compliance. However, as Heather is keen to point out, “Ignorance of the duties is no defence and can result in a statutory notice directing businesses to comply.” She adds that there is a fixed penalty of £400 for non-compliance with the statutory notice and there are other financial penalties, including escalating penalty notices of £50 to £10,000 a day, depending on employee numbers. “The Regulator has stated that it will pursue penalties through the courts if necessary and will prosecute employers for deliberate and wilful failure to comply.” For further information visit: https://www.nestpensions.org.uk https://www.thepensionsregulator.gov.uk