From October 2012 most workers will start being auto-enrolled into a pension plan by their Employer (under the Pensions Bill that also abolished the Default Retirement Age during 2011) – here we give you the full details of the Scheme (as they stand in March 2012):
Employers will have to start paying up to a minimum of 3% of each worker‘s monthly salary, starting from October 2012 into a pension scheme and manage their workers’ contributions and the pension fund, if the worker is not already in a suitable pension scheme.
- However, there is a ‘phasing’ stage for Employer contributions – eventually Employers must make a minimum contribution of 3%, but can pay more, and workers make their own contributions with a minimum of 5% (they will get tax relief on their contributions) – combined, these contributions should be a minimum of 8% of the workers earnings. Initially, however, Employers who have a staging date up to 30th September 2017 (see below) must make a 1% minimum contribution (and the worker a minimum of 1%). Employers with a staging date of between 1st October 2017 to 30th September 2018 must make a 2% minimum contribution (and the worker a minimum of 3%). From 1st October 2018 onwards the Employer minimum will be 3% and the worker minimum must be 5% (so 8% total).
- The start date for the scheme will be staggered by business size and the applicable start dates (called the ‘staging’ dates) are below. The 1st April 2012 is a crucial date though, as the number of PAYE staff that are employed by an Employer at that date, determines that ‘staging’ date the Employer has to start offering the scheme.
This will apply to all workers aged 22 and over (but who have not yet reached the State Pension age) who earn more than £7,475 per year and who work in the UK. This figure, known as the ‘qualifying figure’ (which is the 2011/12 PAYE threshold) will be reviewed annually and is made up a worker’s pay, overtime, commission, bonuses, sick pay and maternity/paternity/adoption pay. These workers will be called ‘eligible job holders‘ under this legislation.
- Workers aged between 16 and 22, and those aged between State Pension Age and 75, and those who are earning more than £5,035 (the 2011/12 Lower Earnings Limit) may join if they choose and will receive Employers contributions. These workers are called ‘non eligible job holders‘ under this legislation.
- Those workers earning between under £5,035 can also choose to join the scheme, but may not be eligible for Employer contributions.
Eligible jobholders will have to be enrolled automatically by the 12th week of their employment but can choose to opt-back out of the scheme after auto-enrolment.
- Employers must communicate to their workers, in writing, when their scheme is starting and how the workers are affected by this. The Employer must tell them they have been automatically enrolled and also that they have the right to Opt Out if they want to do so
- To Opt Out of the pension scheme a worker must complete an ‘opt-out’ notice within the first month of being auto-enrolled – and will receive a refund of contributions made. A Worker can leave the scheme at any other time if they do not Opt Out, but will not receive a refund of contributions.
- Every 3 years all those who have Opted Out will need to be re-enrolled in the scheme (but again can choose to Opt Out).
- There will be an upper limit of earnings – so Employers will only need to make contributions from the Lower Earnings Limit Level to an upper limit. This upper limit is to be confirmed but is currently expected to be approximately £39,000.
The Pensions Regulator will contact all Employers 6-12 months before their staging date with full details. Employers must register with The Regulator and give them details of their scheme and the number of people that have been automatically enrolled.
If an Employer does not offer their own pension scheme they will need to choose one (The Pensions Regulator will produce information later this year to help with this) or they can use the new National Employment Savings Trust (Nest) scheme. If an Employer already has their own pension scheme they will need to check it is a qualifying scheme and confirm this with the Regulator– a qualifying scheme must not impose barriers, such as probationary periods or age limits for members; or must not require staff to make an active choice to join.
The Department for Work and Pensions have published a ‘toolkit’ for Employers.
In addition, from 2012, Employers must not:
- Encourage workers to opt out of the pension scheme (e.g. by using inducements to encourage a worker to Opt out – a salary increase or one-off payment in return for a worker opting out)
- Have recruitment practices in place that benefit job applicants who indicate they are prepared to opt out, or screen out applicants who wish to join the pension (e.g. the Employer must not ask questions or make statements that state or imply that a job applicant’s success is dependant on whether or not they would opt out of the pension scheme; or for example include an Opt Out form as part of a general application pack).
- The Pensions Regulator will be responsible for any breaches by an Employer in the above two circumstances.
- Treat a worker unfairly or put them at a disadvantage or dismiss them because of automatic enrolment (there will be no time limit needed by employees to claim unfair dismissal in these circumstances).
- Employees will also be able to ‘whistle-blow’ if the feel they have been subject to detriment or dismissal for making a protected disclosure under whistle-blowing legislation, if their employer fails to comply with the auto-enrolment legislation.
- To see more details about all of these details see our new article about what is required of businesses from 1st July here.
Staging date timeline
List of staging dates by PAYE scheme size (as of March 2012:
|PAYE scheme size||
|120,000 or more PAYE workers||1 October 2012|
|50,000-119,999||1 November 2012|
|30,000-49,999||1 January 2013|
|20,000-29,999||1 February 2013|
|10,000-19,999||1 March 2013|
|6,000-9,999||1 April 2013|
|4,100-5,999||1 May 2013|
|4,000-4,099||1 June 2013|
|3,000-3,999||1 July 2013|
|2,000-2,999||1 August 2013|
|1,250-1,999||1 September 2013|
|800-1,249||1 October 2013|
|500-799||1 November 2013|
|350-499||1 January 2014|
|250-349||1 February 2014|
Staging dates for employers with fewer than 250 persons in their PAYE scheme:
Employer by PAYE scheme size
|50 to 249 PAYE workers||1 April 2014||1 April 2015|
|30 to 49||1 August 2015||1 October 2015|
|Fewer than 30||1 January 2016||1 April 2017|
|Employers without PAYE schemes||1 April 2017|
|New employers who set up from April 2012 to March 2013||1 May 2017|
|New employers who set up from April 2013 to March 2014||1 July 2017|
|New employers who set up from April 2014 to March 2015||1 August 2017|
|New employers who set up from April 2015 to December 2015||1 October 2017|
|New employers who set up from January 2016 to September 2016||1 November 2017|
|New employers who set up from October 2016 to June 2017||1 January 2018|
|New employers who set up from July 2017 to September 2017||1 February 2018|
|New employers who set up from October 2017 onwards||Immediate duty|
Employers are allowed to bring their staging date forward, but it must be from a list of available dates here.
Workline is supported by Employment Lawyers Goodman Derrick LLP. Please note that the advice given on this website and by our Advisors is guidance only and cannot be taken as an authoritative interpretation of the law. It can also not be seen as specific advice for individual cases. Please also note that there are differences in legislation in Northern Ireland.
Photo by schnaars
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