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Workplace Pensions

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Workplace Pensions

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Following the Pensions Act 2008, Workplace Pensions were introduced (starting with the largest employers of 120,000+ employees) in October 2012 to ensure that all employers provide a funded pension and auto-enrol those relevant jobholders on joining the company. These requirements replace those in place historically for Stakeholder Pensions.

What is the time frame & ‘Staging Date’?

Each employer has their own ‘Staging Date’ (the date by which each company must comply with legislation and have a funded pension in place). The staging date is determined by the number of employees a company had as at 1 April 2012 and their PAYE (Pay As You Earn) reference. The Pensions Regulator (TPR) will be in touch with each company approximately 12 months in advance of their staging date to make sure that early planning has commenced and that all employer duties will be complied with.

What duties do employers have?

All employers must comply with legislation and will need to:

  • Determine the level of contribution from employer and employee i.e. percentage of earnings
  • Establish which earnings definition will be used to determine the contributions e.g. basic salary
  • Decide upon the pension provider
  • Assess their workforce and categorise employees as eligible jobholders, non-eligible jobholders or entitled workers
  • Auto-enrol relevant workers into the Workplace Pension from the staging date (or earlier)
  • Communicate with all employees
  • Pay contributions to the chosen provider within set timescales
  • Register the Pension with TPR
  • Manage triennial audit requirements
  • Maintain (and retain) appropriate records for audit purposes (for every payroll period)

Which Employees have to be auto-enrolled?

‘Eligible Jobholders’ are employees who work in the UK, earn above the minimum earnings threshold and are aged between 22 and state retirement age. These employees must be automatically enrolled.

‘Non-Eligible Jobholders’ and ‘Entitled Workers’ are not auto-enrolled, but have the right to opt in or join respectively.

Phasing in & contributions

Contributions can be phased in from the staging date up to October 2018 and the employer needs to consider which earnings definition to use. ‘Basic Salary’ is the most common method; however, a ‘Qualifying Earnings’ definition can also be used and this allows the potential for a lower overall pension contribution. Assuming the Basic Salary definition is used, then by October 2018, there must be a minimum of 9% in total being contributed from both the employer and employee combined (with the employer paying a minimum of 4%).

What about existing group pensions?

Any existing group pensions will need to be checked for compliance with Workplace Pension requirements. Not all group pensions will be deemed suitable and the existing provider may not agree to provide terms for auto-enrolment purposes (an alternative provider will need to be considered in this case).

How does this affect payroll?

Employers should ask their payroll provider the following questions:

  • When will the payroll software be auto-enrolment ready (if software is required)?
  • What areas of auto-enrolment will it cover? For example, will the software provide the communication wording required with the workers who have been auto-enrolled?
  • How much extra time will they need to run payroll?
  • What support do they offer if help is needed?
  • Does the software communicate with the chosen pension provider?

Summary

The provision of a Workplace Pension is a legal requirement and TPR will be policing the new regime. Early planning and forward compliance (where possible) is essential. Non-compliance will incur penalties.

If you are an employer wishing to discuss your specific circumstances, please get in touch with one of the below representatives.

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