Workplace pension reforms have introduced new responsibilities for employers when it comes to pension provision for their employees. The new system requires auto enrolment of certain staff into a pension scheme – if the business doesn’t already have a pension scheme for employees then it will be required to either set up a ‘qualifying scheme,’ or to find a suitable scheme in the marketplace.
It is enormously important that employers, no matter how large or small their business might be, grasp how serious the pension reforms are, as the responsibilities for ensuring that employees have been enrolled into the chosen scheme, and for making sure that pension contributions are collected and paid over, is going to fall squarely onto the shoulders of employers.
For small and medium sized businesses, this kind of reform can result in some considerable upheaval, so here are some basic steps on how to start preparing for the reforms, whilst ensuring minimal disruption to the business.
1. Budget. These reforms will introduce a new cost element for most businesses in the form of additional administrative costs, upgrading payroll systems, collecting and paying over contributions and keeping the relevant records. This all needs to be budgeted for in advance in order to avoid disruptions to cash flow.
2. Find out the ‘staging date.’ The staging date is essentially the date by which employees must be auto enrolled. For businesses with 250 or more staff this is on or before 1 April 2015, for those with 50 - 249 staff the date is between April 2014 and April 2015, and for those with less than 49 staff it’s between June 2015 and April 2017.
3. Assess the workforce. Not all employees will be covered by the requirements.
- Eligible jobholders will be working in the UK (or ordinarily working in the UK) aged between 22 and state pension age and earning more than £9,440. These employees must be automatically enrolled into a qualifying pension scheme, and must be told in advance they this is going to be done.
- A non-eligible jobholder will not be entitled to be automatically enrolled but has the right to opt in to the pension scheme – this worker is someone aged between 16 and 75 who is earning at least £5,668, but less than £9,440.
- An entitled worker will be aged between 16 and 75 and earning less than the lower contributions limit of £5,668. There is no right to automatic enrolment for this kind of employee but they do have the right to join the scheme.
4. Choose a ‘qualifying scheme.’ If there is no existing staff pension scheme then employers can choose a scheme from the general pensions market, or opt for the National Employment Savings Trust, which is an occupational pension scheme set up by the Personal Accounts Delivery Authority and obliged to accept all employers.
5. Amend any existing pension arrangements. If this is required then consent is likely to be needed from staff/trustees/insurer/provider. It is advisable for businesses to leave plenty of time to do this before the staging date to avoid missing the deadline.