The United Kingdom faces the economic challenge of an ageing society and increasing pensioners to support its working population. There were three people of working age for every pensioner in 2010, but by 2050 this projected to be just two and it is also calculated millions of U.K citizens are failing to plan financially for their retirement. In 2012 only 1 in 3 private sector workers was in any pension scheme (reflecting a 40-year downward trend) with their financial performance impacted by recent poor stock market returns and low-interest rates affecting government bond yields.
The U.K government is increasing the State Pension age (for men and women) to reach 66 by 2020 and 67 in 2028, with the major reform of ‘Auto-Enrolment’ introduced by the Pension Act 2008 to encourage long-term retirement saving. That act by 2018 compels all U.K employers to place their staff into a workplace pension scheme and contribute towards it if they are:
- Not already in any qualifying pension scheme
- 22 years old or over
- Under the State Pension age
- Earn (subject to annual review) more than £10,000 per annum
Employees can leave a pension scheme within one month of officially becoming a member and any payments made by them are refunded. Should they choose to opt out after this period (and depending on the nature of their pension), those payments may not be returned and could remain there until retirement.
For smaller employers, Auto-enrolment may involve establishing and contributing to a pension scheme for the first time. It’s essential to research and start planning for this over a suitable period before any ‘Staging Date’ and consider these points:
The Staging Date
This date is when a company is legally obliged to commence automatic enrolment and should be used by employers to plan accordingly. The time depends on the number of persons in the largest P.A.Y.E scheme that company use’s, based on data from HMRC which is held by The Pensions Regulator.
Understand your Workforce
Identify and define the differing types of workers in your employment with any corresponding employer duties. Individual contracts may require close examination to determine where such duties exactly lie, especially with agency employees and contractors.
Systems and Software
Many functions necessary to comply with automatic enrolment involve business processes (such as monitoring the age and earnings of employees to deduct the correct pension contributions) that will effect Payroll, H.R and Pensions Administration. These should be automated to ensure they all run in an effective and efficient manner.
Review Pension Arrangements
You may operate an existing pension scheme you want to use for the purpose of automatic enrolment. These schemes will need to meet certain criteria, and you need to understand how the new legislation may affect any existing pension arrangements (such as salary exchange or contractual enrolment), which may involve revising its terms, rules and conditions
There is a broad range of information (including financial details on employer and employee contributions) company’s are required to provide their employees with their pension. Some information must be sent to each worker individually, while also ensuring the right person receives the correct information at the appropriate time (for example: if they change their role or category).
Individual employer duties must be obliged. The failure to do so or achieve their Staging Date may result in The Pension Regulator enforcing a notice or penalty.
Employers must register with The Pensions Regulator informing them of the work they have done to comply with their automatic enrolment duties. Its is incumbent on the employer to report, and this must be completed by them within the five months following their staging date.
(The content of this Post on Automatic Enrolment is based on our understanding of the relevant legislation at the time of writing and intended to provide an appreciation of this important topic, but it is not advice. A useful source of further information is The Pension Regulator website).