How employers are affected by the Pensions Act in 2012
Employer's pension contributions
According to the pensions reform announced by the Government in 2008, employers will soon have to auto-enrol their eligible staff in a compulsory pension scheme. There will also be changes to employer pension contributions; by 2017, the equivalent to three per cent of the employee's qualifying earnings should be contributed to the scheme, in addition to the employee's own compulsory contribution of four per cent with a further one per cent in the form of tax relief.
Employees eligible to be auto-enrolled under the Pensions Act are those aged between 22 and state retirement age – although that too is set to change over the coming years. In addition, they must have been at the company for over three months and be earning at least £7,457 per annum. Contributions are deducted from the employee's qualifying earnings – i.e. everything that they earn between £6,500 and £33,540 per annum. Employees can opt out of the compulsory pensions within 30 days of being enrolled, but must be re-enrolled by their employer every three years.
When does pensions reform come into effect?
- 50,000 employees or more – October or November 2012
- 500 to 49,999 employees – 2013, month depending on size
- 50 to 499 employees –2014, month depending on size
- Less than 50 employees – 2015, month depending on PAYE reference number
- New employers – 2016, month depending on date of first PAYE income
There are 43 different staging dates at which the Pensions Act comes into effect, depending on the size and age of the company. These range from October 2012 to September 2017, so certain organisations will need to begin preparing as soon as possible. Peninsula can provide companies with bespoke advice as to when they should implement pensions changes.
How employers can prepare for the Pensions Act
The most far-reaching consequence of the Pensions Act is that every single employer will at some point need to change their terms and conditions for staff. Employment documentation – such as contracts of employment – will need to be updated to allow for employee and employer pensions contributions.
To make sure clients are ready for these changes, Peninsula provides bespoke employment documentation as well as on-demand employment law advice. This can be obtained through the website, the BusinessWise resource centre and the 24-hour hotline.
