Pensions – the latest on auto-enrolment

Pensions – the latest on auto-enrolment

Pensions auto-enrolment is coming, and being ready to comply before its introduction on 1 October 2012 is vital for all businesses in the UK. Understanding what your duties are as an employer can help you prepare for auto enrolment.

What is auto-enrolment?

Auto-enrolment will mean qualifying employees will need to be automatically enrolled into a pension scheme without any active decision on their part. At present, many workers fail to take up valuable pension benefits because they don’t make an application to join their employer’s scheme. Auto-enrolment is meant to overcome this and all eligible workers will have to be auto-enrolled into a qualifying pension scheme.

What does auto-enrolment mean for businesses?

Business who employ eligible workers will need to enrol their employees into a pension scheme that both the employer and the employee contribute to. The scheme must provide auto-enrolment for all eligible workers and all new workers when they become eligible. Each qualifying pension scheme must meet minimum standards in respect of the choice of investment fund and the level of contributions.

Employers can choose the pension scheme they use, which could include the National Employment Savings Trust (NEST) or Sage Pensions (provided by mercer-elect) pension plans designed exclusively for smaller businesses.

The timings

The new employer duties are planned to start from 1 October 2012, however they will be staged over 4 years so the process can be managed more effectively and smaller businesses have time to prepare.

The Pension Regulator will write to all employers around 12 months before their staging date so that they know when they have to automatically enrol their employees. Then three months before the employer’s staging date the Regulator will write again to remind them of the new duties and the need to register.

The UK’s largest employers will be affected first and will need to be compliant by October 2012. However, smaller organisations have more time.

For businesses with under 250 employees, the staging dates will fall over the period from 2014 to 2016. Many businesses are looking to implement qualifying plans sooner, recognising how positively early adoption is likely to be received by their workforce as well as avoiding the anticipated deluge around the staging dates and helping them to control costs by phasing in the contributions.