The Pension Act 2008 is the Governments way of telling the people of the United Kingdom that we are not saving enough. Millions of people don’t save for retirement because a significant portion of the UK has low financial literacy and little understanding of the pension system. This often affects those on the lower end of the socio-economic scale who may not earn a significant amount. For others who do recognise a need to save, our well-recognised consumer culture has delayed or minimised any saving habits.
The reforms contained in the Pension Act 2008 intend to facilitate the low to moderate savers into a financially healthy retirement through a workplace pension scheme. It focuses on increasing private saving, and it hinges on the concept of ‘opt-out’ enrolment. But, of course, this means that employers are expected to do more, and comply with the requirements set out in the Act. It is important for all business owners to be aware of these changes no matter how small or large their business is.
When does the Pension Act come into effect?
Although the Act has been in force from 2008, the staging is split into 43 parts, and it will affect businesses at different times according to the size and age of the company. The earliest date the Act came into force was October 2012, and the last is expected to be September 2017.
The timeline for rolling out the reforms is:
- October 2012 – February 2013: Employers with 250 or more staff
- April 2014 – April 2015: Employers with between 50 and 249 staff
- August 2015 – October 2015: Employers with between 30 and 49 staff
- January 2016 – April 2017: Employers with less than 30 staff
It is important for employers to prepare for the changes that are about the affect them, and to be aware of your staging date at least 12 months before the reforms come into effect. Businesses can find out their exact staging date through the Pensions Regulator website using your PAYE reference.
What are the requirements on employers?
In a nutshell, the Act imposes on employers a legal duty to provide a pension scheme through the workplace and complete a declaration of compliance to the Pensions Regulator; this is referred to as automatic enrolment. These duties are not one off and require employers to adhere to ongoing compliance requirements even after the initial declaration.
If your business does not already have a pension scheme in place, you will need to make arrangements to set one up. This can be done through a qualified provider who will be able to provide you with the relevant systems.
If your business already has a pension scheme in place, you will still need to check that it qualifies with the Pension Regulator requirements.
The Government has set up a qualifying pension scheme known as the National Employment Savings Trust (NEST). Any employer may use their services to comply with automatic employment requirements but are not under any obligations to utilise them. You may use or continue to use other providers so long as they qualify.
The legislative requirements for employers are as follows:
- Section 10 requires certain information to be provided to employees. Employers must inform their employees in writing with information about the pension scheme and how automatic enrolment will affect them. Employers must also provide information about how employees may opt out of the scheme should they wish to
- Section 3 of the Pension Act requires employers to perform automatic enrolments for all employees between 22 years and the state pension age that currently earn more than £10,000 a year, into the automatic enrolment scheme. Employees may opt for outpost enrolment under section 8. However, it is the business owner’s responsibility to complete and comply with the preliminary enrolment requirements for all workers.
- Under section 60 all employers must ensure the keep staff records on file and are up to date. Obligations on how long to keep records varies depending on the information.
- Section 5 and 6 of the Act requires automatic re-enrolment for eligible employees. It is a duty to re-enrol eligible jobholders who have chosen to opt out of the scheme of their entitlements every three years.
- Complete a declaration of compliance to the Pensions Regulator
The key is that although your employees are entitled to opt out of the scheme, they do not have a choice in whether they are enrolled in the scheme in the first place. As an employer you must ensure that all eligible employees are registered with the scheme to avoid liabilities, this means having robust processes in place to ensure legal compliance.
There are also financial obligations on the employer. Employers must make regular contributions into the pension schemes of employees who are enrolled in a scheme. The minimum contribution rate will be phased in incrementally, with the final minimum contribution rate coming into force permanently from October 2018. The minimum contribution rates by employers are as follows:
- Until 29 September 2017 it will be capped at 1%, with the total minimum contribution rate being 2% (inclusive of staff contribution)
- Between October 2017 and September 2018 it will be 2%, with the total minimum contribution rate being 5% (inclusive of staff contribution)
- From October 2018 it will be 3%, with the total minimum contribution rate being 8% (inclusive of staff contribution)
Though it seems a hassle, it is important for employers to comply with these requirements because the penalty could land you with a bill for up to £50,000. As mentioned throughout this post, the Penalty Regulator is in charge of compliance. They may just give you a friendly phone call reminding you that you must comply with your duties, or in more serious cases issue you with a penalty notice with a hefty fine attached to it.
Where to from here?
It’s not all bad for employers, however. While these changes do seem a burden to employers remember that it’s not just you – there’s consolation in the fact that you are not alone. With this in mind, the new pension scheme could be used to set your business aside from others. Perhaps your organisation could develop the scheme as an incentive to keep employees longer, or even attract new employees through what you can offer.
In business sometimes one step backwards can be two steps forward, and fixating on the price of contributions may be crippling for your business. If treated as a social investment it could help bolster your business and increase its social value for employees and as a corollary, your customers.
If you would like to find out more about your obligations under The Pension Act 2008, please phone our office for an appointment on 020 3588 3500.
Do you have any thoughts on this piece? We would love to hear your comments, please feel free to write down your thoughts in the comments section below.