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Size Matters : Major changes to Workplace pensions

From 2012 it is planned that a major change in workplace pensions will come into effect.  An employer will have a duty to enrol workers into qualifying workplace pension arrangements and make a minimum 3% contribution.  The size of your company will determine how early you will have to implement this substantial change in workplace pension which will be phased in from 2012 to 2015 and it could have significant implications for your business.

Compulsory workplace pension schemes

The significant change coming and that you need to be prepared for is “Auto-enrolment”.  This will mean employees will have to be automatically enrolled into the employer's qualifying pension scheme without any active decision on the part of the employee.  In other words, employees will have to opt out of an employer pension scheme rather than opt in, the belief being that as a result of the change in onus employees will stay in the pension scheme particularly as the employer is also required to contribute 3% of each employees earnings to the scheme.

Plan Now

Each qualifying scheme must meet minimum standards in respect of the benefits it provides or the amount of contributions paid to it.  The scheme must also provide auto-enrolment for all eligible employees and for all new employees when they become eligible.  If you have an existing pension scheme you will need to make arrangements to ensure it meets the criteria for qualifying schemes.  If you do not have a pension scheme in place you may wish to begin planning for the requirement to establish a qualifying scheme.

Phasing

Employer contributions will be phased in, so that the burden on employers is minimised, and the size of your company will also determine when you have to begin the automatic enrolment process as it will be phased in over a period starting in 2012 through to 2015.

Opt out not Opt in

Employees will be able to opt-out of the employer's scheme if they choose not to participate.  Employees who give notice during the formal opt-out period will be put back in the position they would have been in if they had not become members in the first place, which may include a refund of any contributions taken following automatic enrolment.

Key Point

The significant change is you will be required to have a qualifying pension scheme in place and rather it be offered to your employees, which was the “stakeholder” approach, under this arrangement your employees will automatically be enrolled into the scheme which immediately commits you to an employer contribution of 3% of the employees earnings.

What next

If you would like any further advice do contact us and we will be very pleased to discuss this with you.