Guide to the impending auto-enrolment pensions law
On 1 October this year the auto-enrolment pension law will take effect. Mike Jenkins, Business Development Manager at Welplan, details everything you need to know about the new legislation.
Automatic enrolment is part of the Pensions Act 2008, which established new duties on employers to increase employee participation in saving for retirement. The auto-enrolment rule will affect every company in building services with one or more employees.
From October 2012, employers will be required to automatically enrol all eligible jobholders – those workers aged between 22 and the state pension age (SPA) earning more than the minimum salary threshold (currently £7,475 pa) – into a qualifying workplace pension scheme and make an employer contribution towards it.
Automatic enrolment has been set as the default, with the option for employees to opt out. This means businesses must have a rolling system in place to automatically enrol all their eligible workers. Any employees who opt out of the scheme must be automatically re-enrolled at three yearly intervals linked to the company staging date, unless they opt out again or have opted out within the previous 12 months.
Time is of the essence. Employers need to begin assessing and readying their systems now.
Each employer will be given a specific date to comply with the new regulations, dependent on the number of employees. This extended timeframe is known as staging.
Originally, auto-enrolment was due to take place over a total of four years. However, in November 2011, the Chancellor announced a delay in implementing the requirements by up to 12 months for small businesses – those with less than 50 employees – until after the next election. A delay in the end date for transitional contributions was also declared, from 2017 until 2018. The Government are due to shortly confirm the new staging dates.
The largest employers – those with 120,000 or more employees – will be staged in first, followed by medium then small businesses. Staging dates will be triggered by their Pay As You Earn (PAYE) schemes.
The Pensions Regulator will write to all employers around 12 and then three months before their staging date so they know when to automatically enrol their eligible workers.
Waiting to receive the notification before taking action may not leave enough time to find the most appropriate scheme for your business. Now is the time to prepare!
From a business’ staging date, employers will be required to contribute at least one per cent of the eligible jobholders’ qualifying earnings to a company pension scheme. Minimum contributions will be gradually increased throughout the staging period, rising to three per cent in 2018.
Many businesses are grossly underestimating the workload and the potential cost implications of the new legislation. The impact could be huge if preparations are not made now to accommodate the costs involved in auto-enrolment and contributions. In particular, for employers where pension participation is low, the increased cost of pension provision and contributions is likely to have a dramatic impact on remuneration models and profitability.
The first steps for employers
The first step is to select the most suitable pension solution for your business and employees, to enable you to meet your new statutory pension obligations.
The Government has set up the National Employment Savings Trust (NEST) to assist businesses with auto-enrolment compliance. However, NEST is a new scheme with limited experience to draw upon. A reliable and experienced qualifying scheme, either run in-house or by another provider, may better meet your business needs.
Welplan Pensions – a solution for the building services industry
Welplan Pensions is a qualifying pension scheme that was established in 1988 to meet the particular requirements of the building services industry. Welplan Pensions offers a pension solution for your entire workforce – clerical and operative employees – and takes care of auto-enrolment and re-enrolment. It also provides advice and support through a dedicated helpline.
For more information on Welplan Pensions call 0800 1958080 or visit www.welplan.co.uk/pensions