New employer duties for pensions: Are you prepared?

In a nutshell, all employers will be required to:

• provide one or more qualifying schemes, which can include the National Employment Savings Trust known as NEST;
• provide relevant information to all staff, for example, telling staff that they are being automatically enrolled and have the right to opt out;
• automatically enrol all eligible jobholders;
• pay a minimum 3% employer contribution on a band of qualifying earnings;
• maintain adequate records; and
• repeat this auto-enrolment process every three years, for staff who previously opted out.
• What should you considering now to prepare for these new duties?

Finding out your staging date

This can be found on The Pensions Regulator’s handy online table at thepensionsregulator.gov.uk/pensions-reform/stagingdate- timeline.aspx.

For PAYE schemes with fewer than 50 employees, the earliest that these reforms will apply is March 2014, but businesses still need to plan and budget in advance. Any seasonal businesses that are allocated a date during the peak of their activity can bring forward their staging date to avoid dealing with the additional administration and employee communications/queries at their busiest time of year.

Employers that are part of a group should beware, as the whole group will be staged in together, meaning they will be staged in early (at the same time as the largest PAYE group).

Choosing a qualifying scheme(s)

This can be an existing staff pension, provided that it is a ‘qualifying scheme’. The scheme must have automatic enrolment – meaning employees must be put straight into the scheme and cannot be required to make any choices, fill out any forms or even sign anything in order to join – which is likely to require changes to existing staff pension arrangements.

Adjustments to contribution levels (or to pensionable earnings, for example, if these are restricted to basic pay rather than qualifying earnings) may also be needed to ensure the minimum amounts are met, and any existing waiting periods may need to be shortened if they exceed three months. Amending an existing pension scheme is likely to require consent from trustees (or insurer/provider for contract-based schemes), which will take time and should therefore be tackled sooner rather than later.

Planning communication with employees

Some employers may reduce costs by offering more than one scheme – for example, a more generous one for higher earners and a different one for lower earners or part-time/temporary employees. However, if more than one scheme is offered, care will be needed when communicating with staff as this could be perceived badly – the choice of scheme itself, therefore, needs consideration and preparation.

Employers should make sure they know which duties they owe to each category of their workers. Only some staff will be entitled to opt in and receive employer contributions, and others (‘eligible jobholders’) must be automatically enrolled, but can opt out. These various categories of staff must each be provided with the appropriate information.

Reviewing payroll systems

Payroll systems will need to collect the employer contributions and deduct employee contributions. Employers will probably need to invest in new or upgraded payroll systems and software, which will need to cope with refunding initial contributions to staff who opt out, and this should be included in budget forecasts.