How employers are affected by the Pensions Act in 2012
Compulsory pension contributions for employees
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, which mean you are legally obliged to pay in to employee pensions.
Employees eligible to be auto-enrolled under the Pensions Act are all those aged over 22, but under state pension age – remember, default retirement age has been abolished so employees over state pension age could now keep working for you and earning wages at the same time.
Employees must work in the UK, must have been at the company for over three months and be earning at least £8,105 per annum. Contributions are then deducted from the employee's qualifying earnings – i.e. everything that they earn between £5,564 and £42,475 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 and how 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. Finally, clients can use hronline, Peninsula's cutting edge new cloud-based service that keeps employee records all in one place.
Employer pension contributions
Another effect of the Pensions Act that employers should be aware of is the increase in compulsory employer pension contributions. There will be several steps to follow in order to ensure your business is in line with the new legislation:
- If you do not currently provide employees with a pension scheme, you will now need to choose a provider
- If you do provide a company pension scheme, you'll need to adjust it to comply with the Pensions Act
- Before the date of enrolment, you should write to your employees to inform them of the details of the scheme
- You will need to calculate the qualifying earnings of each employee, and arrange for the required percentage to be deducted from their wages each month (they can choose to increase this amount if desired)
- The employer pension contributions, combined with the employee contributions and tax relief from the government, will need to reach a minimum level; you must find the funds to meet this requirement
- The combined minimum will grow over time from two per cent to eight per cent of qualifying earnings – which themselves may also change if the employee is given a payrise. This means employers should do frequent audits to stay on top of contributions for each employee.
- Remember, if an employee is dismissed, made redundant, or leaves your employment, all employee and employer pension contributions to date will be theirs to keep.
Peninsula can offer its clients in-depth advice and guidance when adhering to the Pensions Act and making contributions – contact us for more information.