Workplace pensions and automatic enrolment

The Pensions Act 2011 received Royal Assent last November, which means that from 1st October this year, employers will have a legal obligation to automatically enrol ‘eligible jobholders’ onto a qualifying workplace pension scheme. Both employers and eligible jobholders will be required to contribute to that pension unless the jobholder exercises their right to opt out. The contributions are initially at 1% of jobholder earnings each, but will increase gradually so by 2017 contributions will be a minimum of 3% from the employer and 5% from the worker.

The obligations will begin to apply between 1st October 2012 and October 2016. When each employer will have to apply the legislation will depend upon the number of people it has on its PAYE scheme.

The Government has recently confirmed that there will be a delay in the implementation of staging dates for small businesses (those with less than 50 persons in their PAYE scheme) in order to give them more time to prepare for the changes and allow them to avoid making pension contributions for a further year. Those small businesses will now be obliged to begin automatically enrolling their staff in May 2015, instead of April 2014, as previously stated.

Workers must be automatically enrolled if:

 •    They are not already in a workplace pension scheme

 •    They are least 22 years old

 •    They have not yet reached the State Pension age

 •    They earn more than the minimum earnings threshold (£7,475 a year)

•    They work in the UK

This will include employees of umbrella companies and PAYE agency workers. Therefore employers, employment businesses and umbrella companies will be responsible for automatically enrolling their PAYE temps or employees onto a qualifying pension scheme.

The automatic enrolment requirements will impact on employers in a number of ways, the most notable being the increased costs and administration of supplying PAYE Temps or Umbrella Company workers, raising the question: will these new obligations force agencies to pass the increased costs on to the hirer, or will they be absorbed by the agencies themselves?

A survey published by the Chartered Institute of Personnel and Development (CIPD), “Labour Market Outlook: Focus on 2012 Pension Changes”, revealed that less than one third (32%) of employers know the date on which the new auto-enrolment obligations apply to them. 47% per cent of respondents said their organisation had either not identified their staging date (28%) or were unsure (19%). 31% of respondents from large organisations (250 employees or more), whose staging dates are the most imminent, were unsure if their date had been identified or not.  Charles Cotton, Rewards Adviser at the CIPD stated taking a “proactive, rather than reactive, approach” to preparing for auto-enrolment, will allow employers to better deal with any potential cost impacts of the new duties.