Workplace Pensions law is changing, and every UK employer will have to act upon those changes. The new law requires all employers with one or more workers to automatically enrol certain members of their workforce into a pension scheme to which they must make contributions.
This law comes into force for employers between Oct 2012 and Oct 2016, the exact "auto-enrolment staging date" for each employer to be determined by company size. Larger employers will be phased in first, commencing on 1st October 2012.
Staging dates for employers with less than 50 staff start from March 2014 and will also depend on the company PAYE code.
Employers must:
- Automatically enrol eligible jobholders into a qualifying pension scheme
- Make contributions on behalf of their workers
- Register with the Pensions Regulator
- Communicate certain information to their workforce
- Fully comply with the pension law to avoid fines and prosecution
Employers with existing pension schemes will need to benchmark it to make sure that it is a "qualifying" scheme. If it is not, then they must take action to amend or replace it. Those employers who do not already offer a pension scheme will need to establish a suitable "qualifying" pension scheme and then enrol their employees into it. Crucially the employee will not be able to opt out of the pension until after the first deduction is made from their monthly salary. The employee will ultimately have to pay 5% gross (4% net plus 1% tax relief for basic rate tax payers) of salary and the employer will have to pay 3%. Auto-enrolment brings with it a number of administrative burdens that employers will be compelled to address.
The new law is coming into affect as part of a broader overall pension reform strategy.
Companies will be able to use any pension scheme they wish, as long as it is a "qualifying" scheme. Insurance companies are already gearing up to the challenge and it is likely that all the well known pension providers will ensure their group personal pension and group stakeholder pension arrangements are fit for purpose. Of course, it is possible that an insurance provider will not accept some employers as a pension client so the Government has also introduced the The National Employment Savings Trust or NEST pension scheme.
The NEST pension arrangement has been specifically created as a simple, low-cost option available to any employer wishing to use it. NEST will be operated by the NEST Corporation – a non-profit trustee corporation and regulated by the Pensions Regulator.
Whilst the NEST scheme will be a low-cost pension available to all employers, it has a number of restrictions which may not appeal to many. For example, there will not be any financial advice provided, there are restrictions on the number of funds available (around five), restrictions on total contributions that can be made and it will not be possible for the NEST scheme to accept transfers from other pensions in the early years.
Considering the above, Group Pension arrangements may prove to be a more appealing alternative for some employers, as they may be able to benefit from a low charging environment in which these restrictions do not apply. Typically, TISCO can offer an advised pension scheme for around ten staff, with an annual management charge of circa 0.6%, with over 100 funds for members to choose from.
Every employer must act as a result of the new pension law. TISCO have years of experience in regulatory led pension change and are well placed to help you manage your obligations by working with you to create an auto-enrolment strategy. In addition, we have negotiated special terms which enable you to act now to establish an auto-enrolment ready scheme with an initial contribution level of 1% (less if you also utilise salary sacrifice to minimise costs).
Please call us on 01727 734040 to see how we can help or use the contact us feature.
