With effect from October 2012 all employers have been faced with a raft of new employer duties connected to pension reform.

Included in those duties is, for the first time in the history of UK pensions, the requirement for employers to automatically enrol millions of eligible employees in to a qualifying workplace pension scheme (QWPS).

This is a major change to UK pensions. The Government has estimated that some 7 million people are either not saving enough or not saving at all for their retirement. To deliver their aims, the Government is placing the onus on employers to help in encouraging more people to save.

The key issues are:

  • Employers must auto-enrol all jobholders in a pension scheme if they are aged between 22 and state pension age and earn more than £10,000.
  • Qualifying earnings are those that fall between a specific band of the National Insurance Primary Threshold (£5,824 and £42,385 per year in 2015/2016).
  • Contributions will be made by the employer, the employee and the addition of tax relief
  • From staging to March 2018, contributions will be 2% of qualifying earnings with at least 1% from the employer.
  • From April 2018 to March 2019, contributions will be 5% of qualifying earnings with at least 2% from the employer.
  • April 2019 onwards, contributions will be 8% of qualifying earnings with at least 3% from the employer.
  • Other contribution rates may apply if you use a different definition of pensionable earnings rather than banded earnings.
  • Jobholders can opt-out of the scheme if they so wish
  • Employers must re-enrol jobholders who choose to opt out at least every three years
  • Employers can choose to use a good quality private scheme, a National Employment Savings Trust or a combination of the two

It will be possible to gain an exemption from a National Employment Savings Trust if you offer a QWPS that meets the following criteria:

  • The scheme permits auto-enrolment
  • Has a minimum contribution rate matching those detailed above
  • Has a default investment fund

Auto-enrolment is a major issue for employers.

Research has shown that auto-enrolment is one of the most effective ways of triggering pension scheme membership and contribution. So it is highly likely that your business will incur significant additional costs from now on. The increase will be much higher for those employers who did not already offer a company pension scheme or who did not contribute to it for their employees.

Further information on auto-enrolment can be found here and on our factsheet entitled "Government Pension Reform". We also have a guide for employers that can be provided as part of the advice process.

As an employer, it is vital that you receive professional independent advice on the changes and the impact that they will have on your business. Please contact us to arrange a free no-obligation meeting.

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