Understand your obligations
As a result of a review by the Pension Commission, the Government has created an employer responsibility to automatically enrol eligible jobholders into a good pension plan, and to make contributions to it.
This creates a range of new employer obligations which are laid out in the Pension Act 2008.
In our 'Basics' section we outline the changes. The following questions & answers section may help employers to understand these subjects in more depth.
Failure to comply with automatic enrolment and employee opt-in provisions is an offence punishable by imprisonment for up to two years, a fine, or both.
Employers will have a duty to automatically enrol eligible jobholders between the ages of 22 and State Pension Age into a qualifying workplace pension plan.
Automatic enrolment means instead of choosing whether to join a workplace pension, all eligible jobholders will have to actively decide not to join - for example if they feel this form of personal saving does not meet their needs.
You may be able to defer automatically enrolling eligible jobholders for up to three months from your staging date (the Deferral Date) by notifying all eligible jobholders of your intention to do so. The deferral date becomes the eligible jobholders' automatic enrolment date and contributions will begin from that date.
Every three years, from the plan's staging date, any eligible jobholders not already in a qualifying plan must be automatically re-enrolled into the plan. You have a 'window of flexibility' of six months (three months before and three months after the three year anniversary of the original automatic enrolment staging date) to bring forward or delay this process. There are exemptions in respect of individuals who have opted-out, or reduced contributions below the minimum required, less than 12 months before the re-enrolment date, or where notice to leave employment has been given.
Contributions are based on earnings which are at least equal to the qualifying earnings (currently between £5,876 and £45,000). Qualifying earnings are defined as salary, overtime, bonus, commission and statutory pay.
The diagram below shows the entitlement of different groups of jobholders.
*All figures stated are based on the 2017/2018 tax year. The Government may change these figures each year.
- The introduction of automatic enrolment may be deferred by up to three months by notifying all eligible jobholders or jobholders of the intention to do so. In this case, the employer's disclosure information mentioned above can be provided during the deferral period, or at the end of the deferral period.
- By the end of the third month, all eligible jobholders must be automatic enrolled. Eligible jobholders are given one month to opt-out.
- The first contribution will be deducted during month four (if a full three month waiting period is used).
- Contributions deducted in the first three months of membership must be remitted to the plan by 19th of the fourth month following the staging date or the deferral date.
Jobholders can choose to opt-out by providing a valid opt-out notice to you within one month beginning from:
- The later of the date that automatic enrolment information is provided by you, or active membership is created within a money purchase plan; or
- Where a personal pension plan is being used, the later of the date that automatic enrolment information is provided by you; or
- The date they were provided with the terms and condition about the plan.
Information on how to access the opt-out form must be sent to the eligible jobholder at the appropriate times.
You will have to notify us when an opt-out notice has been received and arrange to refund any contributions deducted from the jobholder within one month of receiving the notice.
A key requirement for employers is to provide information to their eligible jobholders about their pension plan. This communication needs to go to all eligible jobholders including:
- Those who will be automatically enrolled.
You will have to provide prescribed information to eligible jobholders about the automatic enrolment plan within six weeks of the automatic enrolment date. This should inform these individuals that they have been automatically enrolled into a qualifying pension plan, give them information on how to opt-out, and minimum contribution levels.
- Those who are existing members of a qualifying pension plan.
You will have to provide prescribed information to active members of a qualifying pension plan within two months of the automatic enrolment date. It should detail that they are not affected by the changes. If current contributions need to increase to minimum levels, this will also need to be communicated.
- Those who are not going to be enrolled.
Non-eligible jobholders can opt-in to pensions saving and entitled jobholders have the right to join. You must provide prescribed information to those who are not going to be enrolled about how they can opt in or join, within six weeks of assessing their jobholder status.
Where we have agreed to support your plan through automatic enrolment or qualification, we have created templates to help you communicate to your jobholders.
Various types of plan can be used as a qualifying pension plan. If you want to continue using your existing pension plan, you need to check that it meets the qualifying criteria. Note that different plans may be used for different jobholders. This is also subject to us accepting your plan for qualifying purposes.
If an existing plan is used for qualifying purposes, you will also need to consider how you will automatically enrol eligible job holders into another plan. We may be able to offer another scheme for automatic enrolment.
Please contact us for more details.
Alternatively, you may use the National Employment Savings Trust (NEST) to meet your obligations. NEST has a public service obligation to accept any employer of any size.
To find out if your current plan will meet the qualifying criteria, visit The Pension Regulator's website and use their online tool.
Because of the significant numbers of employers affected by the new rules, employers have been staged in over a five year period between October 2012 and April 2017, with larger employers being staged first.
New PAYE plans will be staged up until February 2018 depending on when they were created.
Your staging date will be determined by the size of your workforce under PAYE at 1 April 2012.
The Pensions Regulator will notify you of your staging date 12 months before this date, with a reminder three months before.
To minimise the financial burden on your business, the increases to the minimum contribution levels are being phased in over a six year period (the transitional period).
Minimum contributions are being phased in as follows based on qualifying earnings:
|Time||Employer minimum contribution||Total minimum contribution||Pensionable Pay on which contributions are based|
|Employer's staging date to 31 March 2018
|1 April 2018 to 31 March 2019||2%||5%||Qualifying earnings|
|1 April onwards||3%||8%||Qualifying earnings|
It can be difficult to calculate earnings levels and contributions accurately, especially if earnings are variable. To deal with this, it is possible for an employer to 'self-certify' their plan into one of three arrangements. These alternative arrangement contributions are also 'phased in' to October 2018.
The contribution rates for these three alternative tiers are set out below:
|Tier of certification||Time||Employer minimum contribution||Total minimum contribution||Pensionable Pay on which contributions are based|
|Alternative set 1||Employer's staging date to 31 March 2018
||2%||3%||At least equal to Basic Pay|
|Alternative set 1||1 April 2018 to 31 March 2019||3%||6%||At least equal to Basic Pay|
|Alternative set 1||1 April 2019 onwards||4%||9%||At least equal to Basic Pay|
|Alternative set 2||Employer's staging date to 31 March 2018||1%||2%||At least equal to Basic Pay and are at least 85% of total earnings|
|Alternative set 2||1 April 2018 to 31 March 2019||2%||5%||At least equal to Basic Pay and are at least 85% of total earnings|
|Alternative set 2||1 April 2019 onwards||3%||8%||At least equal to Basic Pay and are at least 85% of total earnings|
|Alternative set 3||Employer's staging date to 31 March 2018
||1%||2%||Jobholders pay (all pay elements)|
|Alternative set 3||1 April 2018 to 31 March 2019||2%||5%||Jobholders pay (all pay elements)|
|Alternative set 3||1 April 2019 onwards||3%||7%||Jobholders pay (all pay elements)|
- A plan certification period can last up to 12 months and you may use certification for the whole plan or groups of members.
- In addition to choosing a certification method, these contributions can also be phased in over the transitional period.
- Where a certification method is used, this must be in place from the staging date, although contributions will still be due from the deferral date.
- Within five months of the staging date, or two months of the automatic re enrolment, you will have to provide information online via a declaration of compliance to The Pensions Regulator. Within this you will need to evidence how you have met your duties, including information on the plans you are using.
- You will also have to maintain records of the plans used to meet your obligations, details of automatically enrolled jobholders (including those that subsequently opted out) and voluntary joiners.
- Most of these records must be kept for a minimum of six years, with the exception of those relating to opt-outs, which must be kept for four years.
- Eligible jobholders have a right not to suffer detriment in their employment as a result of the new pension provisions and may take cases to an employment tribunal if they do.
- Arrangements made between the employer and jobholder to prevent the operation of the legislation will be void and unenforceable.
If an existing plan is used for qualifying purposes, you will also need to consider how you will automatically enroll eligible job holders into this, or another plan. Some of our plans may be used for automatic enrolment.
Please contact us for more details.
- NEST is a trust based money purchase plan for non-associated employers (this is a Master Trust).
- It is open to all employers and has been designed to offer simple, low cost pension provision.
- Although NEST will generally be subject to the same legal requirements as other occupational pension plans, certain differences will apply, in particular:
- It will accept all employers who wish to use it.
There is a cap on member contributions and it cannot transfer pension rights from or to other plans. The Government will review these limitations in 2017.
- It will offer the same low charge to members, regardless of whether they work for a small, medium or large employer.
- It will ensure employer and member representation. As NEST is such a large and diverse plan it does not have traditional member-nominated trustees but employer and member panels.
- It will accept all employers who wish to use it.