Workplace Pensions and Auto Enrolment – How to avoid the Financial Penalties

Pensions in the workplace – All UK employers are subject to pension reforms that came into force on 30 June 2012. The new duties will eventually require employers to automatically enrol all eligible jobholders into a qualifying workplace pension scheme and make mandatory minimum contributions.

Employers will be able to use their existing pension arrangements (or put in place new arrangements), provided those schemes meet the qualifying criteria. Alternatively, employers have the option to offer the National Employment Savings Trust (NEST) pension scheme to eligible jobholders in order to meet their new pension obligations. NEST is a Government pension scheme designed specifically for low earners and others who are new to pension saving.

An eligible jobholder will be free to opt out of either type of scheme once they have been automatically enrolled. However, employers will be required to automatically re-enrol jobholders every three years after they first become subject to the statutory employer duties. Whilst the jobholder remains an active member, the employer will be required to pay a minimum level of pension contributions.

Phased introduction of the auto-enrolment phase for workbased pensions

There will be a phased introduction of the auto-enrolment regime. All UK employers have been separated into a large number of bands according to their size, with each band being assigned a particular monthly staging date from which they will be obliged to start the enrolment processes. Large employers will become subject to the enrolment duties before small employers. Which band an employer falls within will depend on the employer’s PAYE data broadly:

• More than 250 workers: staging dates between 1 October 2012 and 1 February 2014
• Between 50 and 249 workers: staging dates between 1 April 2014 and 1 April 2015
• Fewer than 50 workers: staging dates between 1 June 2015 and 1 April 2017
• New employers set up between 1 April 2012 and 30 September 2017: staging dates between 1 May 2017 and 1 February 2018.

If an employer does not comply with the auto-enrolment regime the Pensions Regulator may intervene and require certain steps to be taken or levy financial penalties. For employers with 500 or more workers this could be up to £10,000 a day.

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