Pension Reforms – Workplace Pensions

Every business, even those with just one employee, will be affected by compulsory pension reforms over the next few years.

On 27th October 2010 the Department for Work and Pensions published the results of an independent review of workplace pension reforms, recommended by the Pension Commission. They concluded that every employer, regardless of size will, from 2012, be required to automatically enrol all ‘eligible jobholders’ into a qualifying workplace pension scheme and make contributions towards it.

An eligible jobholder is defined as a worker aged between 22 and state pension age earning more than the personal income tax allowance threshold (currently £7,475) and working or ordinarily working in the UK. This represents virtually all full time workers and many part time employees.

An overall minimum contribution of 8% of an individual’s qualifying earnings must be paid into the scheme.  At least 3% of this must come from the employer with the remainder paid by the employee. This is going to come as somewhat of a shock to employers and their workers who do not currently contribute anything at all – As an easement, minimum contribution levels will be phased in gradually between October 2012 and October 2017.

In terms of go live dates, the new duties will be introduced in stages over a four year period. Employers with the largest number of workers in their PAYE schemes will have the earliest staging date and the smallest employers last.

Prior to reaching their staging dates, employers will need to have followed numerous steps to ensure they are compliant with their new duties. This will include actions such as assessing the workforce to identify who they will need to auto-enrol and selecting a suitable pension scheme into which contributions will be paid. Other duties will include providing information to the scheme, its employees, registering with the regulator and managing opt-outs.