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Pensions

Content:

Introduction

Automatic enrolment

Steps for an employer to take

Combined pension statement

Enforcement

 

Introduction


These pages deal with the obligations upon employers under the Pensions Act 2008 in England, Scotland and Wales to provide a pension scheme for which eligible workers are automatically enrolled. In Northern Ireland, the corresponding legislation is the Pensions (No.2) Act (Northern Ireland) 2008 and the Pensions Act (Northern Ireland) 2012. This article does not deal with the subject of pensions generally.

For general information about pensions from the point of view of the employer, visit the Pensions Regulator site.

The Pensions Act 2008 was passed on the introduction of the previous (Labour) government introduced. For the first time, employers in England, Scotland and Wales are required to arrange an occupational pension scheme for which eligible workers must be automatically enrolled and to which employers and workers must contribute unless the worker opts out.

The Act also establishes the National Employment Savings Trust, a public pension provider for those who do not have an occupational pension scheme, which will function as a low-fee pension scheme in competition with existing funds. This also applies to Northern Ireland.

Automatic enrollment


An employer must ensure that the pension scheme meets certain criteria and that workers who are eligible (‘eligible jobholders’) are automatically enrolled into the scheme from the applicable date (‘the staging date’). Staging dates are being staggered over six years, with large employers first from 1/10/2012.

An employer may comply with the legislation either by using an existing pension scheme, establishing a new scheme (which must satisfy the minimum standards), or electing to utilise the new government sponsored nationwide scheme known as the National Employment Savings Trust (NEST).

If an employer wishes to use a defined benefit pension scheme for auto-enrolment purposes, it must meet minimum requirements for a final salary (defined benefit (DB)) scheme and have a valid contracting-out certificate, indicating that it is an appropriate replacement for the state second pension; or provide broadly equivalent or better benefits than the benefits which a contracted-out scheme is required to provide.

How auto-enrollments works


An employer is required to pay a minimum contribution of a worker’s qualifying earnings into the scheme. The contribution level is being phased in during implementation, increasing gradually to help employers adjust to costs.

Phasing will apply to most, though not all, types of pension scheme (your scheme provider will be able to tell you if phasing applies to you).

Ultimately the minimum contribution level will be equivalent to 8% of qualifying earnings, of which the employer will pay at least 3%, although they could choose to pay more. The individual must make up the difference, if any, and will receive tax relief on their contributions. For example, if an employer pays 3%, the individual must pay 4% and will receive 1% tax relief, based on a basic rate of tax of 20%. The individual may choose to opt out of pension saving if he wishes.

From October 2012 the minimum contributions are a total contribution of 2% with at least 1% employer contribution. Subject to further consultation to be undertaken by the Department for Work and Pensions (DWP), contributions will be phased in as follows:

Employer’s staging date    Employer min. contribution    Total min. contribution


Up to 30/09/2017                   1%                                              2%


1/10/2017-30/09/2018            2%                                             5%


1/10/2018 onward                  3%                                              8%

Steps to take

For guidance on what steps should be taken to comply, see the Pensions Regulator guidance


An online pension calculator is available on the Pensions Advisory Service website.It is desigend to help employers to select the most suitable automatic enrolment scheme for their employees.

* Preparing for automatic enrolment
* Know your staging date
* Assess your workforce
* Review your pension arrangements
* Communicate the changes to all your workers
* Automatically enroll your 'eligible jobholders'
* Register with The Pensions Regulator and keep records
* Contribute to your workers' pensions


What’s New items on this topic [go to the What's New page or archive for the full item]:

 

02/02/2017: Automatic Enrolment Triggers and Pensions Regulator warning

The draft Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2017 sets revised amounts for the 2017/18 tax year are set out for the upper and lower thresholds of the automatic enrolment qualifying earnings band and rounded figures for the earnings trigger and qualifying earnings band. These changes come into force on 6 April 2017.

The Pensions Act 2008 (PA 2008), s 13, provides that an individual’s qualifying earnings are those of more than the amount specified in subsection (1)(a) of that section, and not more than the amount specified in subsection (1)(b) of that section.

The automatic enrolment and re-enrolment earnings trigger is the earnings level at which employers must automatically enrol eligible jobholders into a qualifying workplace pension scheme.The automatic enrolment qualifying earnings band is, in relation to money purchase schemes, the band of earnings on which employers and workers must pay a minimum level of contributions .Each tax year the Secretary of State has to review the automatic enrolment earnings and re-enrolment earnings triggers and the qualifying earnings band.

The Secretary of State has decided the current automatic enrolment and re-enrolment earnings trigger of £10,000 remains at the right level and therefore will not change for 2017/18.In relation to the upper and lower limits of the qualifying earnings band, the Secretary of State has decided:

* that the National Insurance Contributions Upper Earnings Limit at its 2017/18 value of £45,000 (up from its 2016/17 value of £43,000) is the factor that should determine the upper limit of the qualifying earnings band;

* to retain the link with the National Insurance Contributions Lower Earnings Limit at its 2017/18 value of £5,876 as the lower limit of the qualifying earnings band for 2017/18.

The Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2015, SI 20915/468, and the Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2016, SI 2016/435, are revoked.

The Pensions Regulator warns employers who ignore automatic enrolment duties could find themselves with a County Court Judgement, the regulator has warned.

The alert comes as The Pensions Regulator (TPR) issues the latest update on its automatic enrolment enforcement activity which shows the number of fines has again risen in proportion to the large number of employers now reaching their deadline to comply.

TPR will seek a County Court judgment against employers who ignore penalty notices sent to them. If an employer fails to pay within 30 days of receiving the judgment, the details will appear on their credit record.


For guidance on what steps should be taken to comply, see the Pensions Regulator guidance
An online pension calculator is available on the Pensions Advisory Service website.It is desigend to help employers to select the most suitable automatic enrolment scheme for their employees.

* Preparing for automatic enrolment
* Know your staging date
* Assess your workforce
* Review your pension arrangements
* Communicate the changes to all your workers
* Automatically enroll your 'eligible jobholders'
* Register with The Pensions Regulator and keep records
* Contribute to your workers' pensions

Combined Pension Statement


The Combined Pension Statement (CPS), previously called the Combined Pension Forecast (CPF), is a voluntary service that lets you combine pension information for your employees in a single statement. This includes details of their State Pension and workplace or personal pension. The information in the statement may help employees plan their retirement, eg by encouraging them to increase their pension contributions.
Pension providers, trustees and third-party administrators can also use the CPS service to get combined pension information for their scheme members.


The CPS service improves pensions data by making sure information held by the scheme matches that held by the Department for Work and Pensions (DWP).
For further information and the aApplication steps for employers, see the Combined Pension Statement (CPS) service, previously the Combined Pension Forecast (CPF).

Enforcement

Civil enforcement


A failure by an employer to comply with the employer’s duties under the Pensions Act 2008 (PA duties) does not give a worker a right to sue for breach of statutory duty.


However, the Pensions Regulator may serve a compliance notice on the employer requiring him to take specified steps to remedy the contravention.
If the non-compliance continues, the Pensions Regulator may impose monetary penalties. The first type of penalty is a ‘fixed penalty’ of £400. The Regulator has stated that a fixed penalty notice is likely to be issued where an employer has failed to take any steps, or is doing ‘too little, too late’, in response to a Compliance Notice. The employer will be given a reasonable period of time to pay the penalty (a minimum of 4 weeks) from when the penalty notice is issued. In addition, the employer will be required to demonstrate they have put right the breach.


Where the employer fails to take the steps necessary to comply (despite having been issued with a fixed penalty) the Regulator may issue a further ‘escalating penalty’ based on the number of persons the employer has in his PAYE scheme and will accrue at a daily rate until compliance is achieved. The daily accrual rate starts at £50 for schemes with 1-4 persons up to £10,000 for 500 +.


An employer has the right to request a review of a compliance notice and to appeal against a compliance notice to the Pensions Regulator Tribunal.

Criminal enforcement


An offence is committed by an employer who wilfully fails to comply with the PA duties regarding automatic enrolment. On conviction on indictment, the penalty is imprisonment for a term not exceeding two years, or to a fine, or both. There is provision for < Director’s criminal liability >.

[Page updated: 06/02/2017]

 

 

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