Workplace pension reform

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All employers need to be aware of their responsibilities following the introduction of pension reforms. Some elements of this new legislation, such as the safeguards for individuals, came into effect for all employers from 1 July 2012.

 

The Pensions Regulator has issued “Getting Ready” notes for employers and this can be downloaded as a PDF document at http://www.thepensionsregulator.gov.uk/docs/pensions-reform-getting-ready-v4_1.pdf.

 

This article summarises some of the key points.

 

• Employers should find out the staging date from which the new auto enrolment regulations apply to their business.

• Employers will need to familiarise themselves with the duties they are likely to have to comply with. These could include: deciding on a pension scheme to use, preparing data to send to scheme administrators, preparing information to send to employees, and setting up payroll processes.

 

Staging Dates

 

1. Employers with 250 or more employees will be staged between October 2012 and February 2014.

2. Employers with 50 to 249 employees will be staged between 1 April 2014 and 1 April 2015.

3. Employers with less than 50 employees will be staged between 1 June 2015 and 1 April 2017.

4. New employers setting up a business from 1 April 2012 up to and including 30 September 2017 will have staging dates between 1 May 2017 and 1 February 2018.

 

In certain circumstances small employers (employers with less than 50 employees at 1 April 2012) can elect to move their staging date to a later modified date. These modified dates are published in the PDF linked earlier in this article.

 

The Pensions Regulator will be writing to each employer 12 months and 3 months ahead of their staging date.

 

Employers costs to increase by 3%

The Pensions Regulator has published information about proposed workplace pension changes that are due to be phased in from next year.

Workers who will need to enrol in the new workplace pension arrangements unless they expressly choose to opt out are:

* Employees who earn more than the minimum earnings threshold (to be announced), and
* Are aged between 22 and state pension age, and
* Work in the UK.

Each employer will be given a date from which changes will have to be in place. This will be known as the staging date. Larger employers will have the earlier staging dates. The staging dates will begin in October 2012 and continue through to 2016.

Readers may find the following notes useful:

* Find out what your likely staging date will be at www.tpr.gov.uk/staging
* The employer will be required to contribute at least 3% of worker’s earnings.
* Employers and workers will be required to make a contribution such that the minimum, combined contribution is 8%.
* Employer and workers will qualify for tax relief on their contributions.
* Existing pension arrangements may qualify; you will need to check with your pensions advisor.

More general information on the changes is available at www.thepensionsregulator.gov.uk/pensions-reform.aspx

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New pension rules

Another set of regulations is set to fall on the shoulders of all employers. This time it’s a compulsory pension scheme for all employees.

This new pensions law is due to be introduced over four years from October 2012. The largest employers (120,000 or more employees) will be forced to sign up first. Those who employ less than 50 workers will be required to take part in the scheme from a date sometime in 2014 to 2016. The exact date will depend on your PAYE reference number.

Only one-man companies will be exempt, otherwise every employer who has workers in the UK will be required to enrol those workers in a pension scheme. There will be exceptions for workers aged under 22, over state retirement age or paid less than £7,475. Employees will have to take an active decision to opt out and sign a form to do so. The employer will not be permitted to induce employees to opt out, or to screen out potential employees who do not wish to opt out of the pension scheme.

Employers and employees will be required to make contributions to the pension scheme totalling 8% of the workers band (approx £5,000 to £33,000) earnings, including tax relief given on the employees’ contributions. The employer must contribute at least 3% of the workers’ earnings. This level of compulsory contributions will be imposed gradually over five years to 2017.

Employers can use an existing pension scheme, set up a new one, or failing this, use the new pension scheme established by the Government called NEST (National Employment Savings Trust). Where an existing scheme is used the employer will have to certify that it meets all the requirements for compulsory pension saving. Every employer will also be required to register with the pensions regulator.

To prepare for these new regulations talk to your pension scheme provider, if you have one. If you don’t have a workplace pension scheme you need to plan to set one up as this can take sometime to implement, and to start budgeting for the costs! An Independent Financial Advisor can explain all this and may be able to recommend more cost effective alternatives to the NEST scheme.

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