The pensions crisis across Europe provides a number of challenges for businesses. In the UK, the government has responded with a raft of legislation, including the mandatory sign-up to company pensions for all employees. This auto-enrolment is being phased in gradually, and requires all employers to opt employees in to a pension. This article looks at what businesses have to do in order to stay within the law.
As part of the UK government’s long-term strategy to tackle the growing pensions crisis, changes have been made to the Workplace Pensions Law. Over the next four years, employers will have to automatically opt employees in to company pension schemes. Employees will have the opportunity to opt-out, but a company pension will be mandatory.
Every employer will be allocated a date from which their duties apply – you can find out your date by visiting the pension regulator’s website armed with your PAYE reference and the number of people in your PAYE scheme. If you have several PAYE schemes, you need to use the one with the largest number of employees on it.
The first ‘wave’ of companies who will need to comply with the new laws consist of just a handful of large corporations, but over the next four years, every business in the UK will be included.
1) Select the most appropriate pension scheme
You may already have an existing scheme, in which case you will need to automatically opt employees in to the scheme by the staging date given according to your business size. Your scheme will need to be certified by the Pensions Regulator first, though.
You could alternatively use NEST – the National Employment Savings Trust – which is obliged to accept any employer as a client. Your obligation is to provide the scheme with details of the individuals you are enrolling.
2) Select the individuals you are enrolling
The terminology used by the government is ‘eligible jobholders’, i.e. those who are aged between 22 and the state pension age, working in the UK and earning above a qualifying earnings threshold, currently set at £7,475.
The following criteria are deemed to be irrelevant: nationality, location, length of stay in the UK. They must, however, be working in the UK.
3) Inform employees of the changes
You must inform all employees about the changes in writing. A link to a website or a poster in the cafeteria is not enough; you must clearly inform how the changes are going to affect them and their salaries, the date from which the changes are going to be applied, and what actions they can take (i.e. opt out).
4) Applying the changes
You must start contributions within three months of the auto-enrolment staging date. The law requires you to pay at least 8% of the employee’s qualifying earnings into the pension fund, of which you pay 3%.
Employees have an opt-out period of one-month, and any contributions made within that month must be refunded. The Pensions Scheme Provider must provide the employee with an ‘opt-out notice’.
You are able to bring forward your staging date, should you wish to do so. The Pensions Regulator lists the earliest available staging dates on its website.
Photo courtesy of Flickr (cc) Alan Denney