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Automatic Pension Enrolment

31st October 2012

On the 1st October 2012 reforms to workplace pensions in the UK came into operation. These reforms introduced automatic enrolment into workplace pensions for certain employees (though not all). Under these reforms employees will be required to contribute into a pension scheme unless those employees are already members of a qualifying pension scheme.

The automatic enrolment provisions apply to employees aged between 22 yrs and the state pension age, who earn over £8,105 per year.So, although it will cover a large number of employees it will not cover ALL employees.

The automatic enrolment provisions will not affect all businesses from the 1st October 2012. Initially the changes will only apply to large employers, ie those employers that have 120,000 or more members in their PAYE scheme. However, it is expected that the scheme will be rolled out to all businesses by April 2017. In reality most employers that have 120,000 or more staff already make pension provisions for their employees. There are relatively few employers in the private sector that have this many employees, notably the major supermarkets. However, each employer is to be contacted by the Pensions Regulator between 6 to 12 months in advance of them being brought into the scheme.

Employers are required to contribute a minimum of 3% of each worker's salary into the pension scheme, and the total combined contribution (ie that from the employer and employee added together) must be at least 8% of the employee's earnings. However, this level of pension contributions will be phased in over time to help employers as well as individuals adjust. Employers will be required to check if any existing pension scheme is sufficient to amount to a qualifying scheme meeting the required standards. The employer also has to tell its employees what kind of pension scheme it has chosen, and tell each eligible employee that they have been automatically enrolled, and that they can opt out if they wish.

Various criminal offences have been introduced to enforce the operation of the scheme. The wilful failure by any employer to comply with their requirements under the reforms and requirements of the scheme can lead to a sentence of up to two years imprisonment, and a new form of automatice unfair dismissal will apply to any employee that has been dismissed as a result of trying to exercise their rights under these provisions.

The impact of these changes will be felt more strongly when they apply to smaller employers, ie most private sector employers.However, employers do need to become aware of the impact of these changes, as do affected employees.

If you need further help on the issues raised in this article do not hesitate to contact us at Hallett Employment Law Services Ltd.    

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