Pensions auto-enrolment...are you ready?
13 months and counting - understanding your obligations under the new auto-enrolment regime

Updated September 2011

You may have seen reports in the press concerning the new regime on auto-enrolment due to come into force from 1 October 2012. This update aims to give you more information about auto-enrolment and your obligations as an employer.

What is auto-enrolment?

From 1 October 2012, employers will have a legal obligation to automatically enrol 'eligible jobholders' into a 'qualifying pension scheme'. A qualifying scheme will be either NEST (National Employment Savings Trust), the government's newly created workplace pension scheme, or an employer's own existing pension scheme, provided that their scheme meets certain relevant requirements.

When will your obligations start?

Each employer's obligations will commence on a 'staging date' which will be between October 2012 and October 2016. The staging date will be calculated by reference to the number of people in an employer's largest PAYE scheme as at 1 April 2012. The largest employers will have the earlier staging dates.

To find your staging date, look at the Pensions Regulator's 'staging date' calculator which can be found at: http://www.thepensionsregulator.gov.uk/pensions-reform/staging-date-timeline.aspx . The Pensions Regulator will send you details of your staging date 18, 12 and 6 months before you are due to auto-enrol your employees.

Who are 'eligible jobholders'?

These are workers who:

• earn more than the minimum earnings threshold (£7,475 in 2011/12). This threshold will alter from time to time.
• are aged between 22 and state pension age; and
• work in the UK under a contract.

This includes temporary workers and directors under a service contract but not non-executive directors. Agency workers are eligible jobholders if the employer is responsible for paying the agency worker.

The Pensions Regulator will expect you to provide, on registration with them, details of the processes that you have gone through to identify all eligible jobholders. The Pensions Regulator anticipates that you may need to seek legal advice when assessing your workforce. If you are struggling with who might be an 'eligible jobholder' we would, of course, be happy to advise you on who would fall within the definition.

What must employers do?

Employers need to:

• provide a qualifying scheme for their workers;
• automatically enroll all eligible jobholders into the scheme (although employers can wait three months before new jobholders need to be enrolled);
• tell employees that they have been enrolled and given them the right to opt out if they want;
• register with the Pensions Regulator details of the qualifying scheme and the number of people who have automatically enrolled; and
• pay employer contributions.

Note that eligible jobholders who have opted out will need to be automatically re-enrolled every three years.

Mandatory contributions

Contributions will be phased in over a period of five years for employers and employees, starting with a 1% employer contribution of a worker's gross qualifying earnings. This does not include any earnings above the upper earnings threshold (currently £33,540). Qualifying earnings include salary, wages, commission, bonuses, overtime, statutory sick pay and statutory maternity, paternity and adoption pay. The 1% employer contribution rises to 3% within five years of your staging date.

Employees must contribute a minimum of 4% of qualifying earnings. They will also receive 1% tax relief, resulting in a total of a minimum of 8% combined contribution, inclusive of the employer's contribution.

Can employers avoid this?

Employees can opt out of auto-enrolment but employers cannot induce workers to opt out of a qualifying pension scheme or make job offers conditional on opting out. The Pensions Regulator will police employer compliance. Large employers that do not comply could be liable for escalating penalties of £10,000 a day with criminal penalties for 'wilful' failure to comply.

However, employers can take steps to minimise the effect that auto-enrolment will have on them.

What should you do next?

• Plan ahead to check when your staging date will be and consider the impact on payroll costs;
• Check whether your current pension scheme meets the requirements for a qualifying pension scheme and, if not, consider whether to use NEST or whether you wish to amend your current pension scheme;
• Amend your payroll to comply with increased or new pension contributions;
• Assess your workforce to identify the staff members who are eligible jobholders that you need to automatically enrol; and
• Look at your employment contracts, employee handbooks and policies to make sure that, following your staging date, they will reflect the auto-enrolment requirements effectively.

Working with our colleagues in TLT's employment team, we would be glad to review your contracts of employment and amend them where necessary to ensure that they cover all key aspects of the auto-enrolment regime. We can also assist with advice on whether your pension scheme is a qualifying scheme and, if not, draft the relevant amendments to ensure it meets the requirements.

Please contact Sasha Butterworth if you have any queries about your duties under the new auto-enrolment regime.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at September 2011. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.

The information you access via the links on this update is subject to the terms and conditions of the website provider accessible via their home page and we recommend that you read such terms.

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