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What changes are being made to employer duties under pension law?

24th September, 2012

Amendments to the Pensions Act 2008 in the form of the Pensions Act 2011, have resulted in changes to pension law which will soon be brought into practice. One of the primary reforms is the requirement that employers, from the applicable staging date, will be required to automatically enrol their employees into a qualifying pension scheme once certain requirements are met. The pension scheme can be their own qualifying scheme (provided it meets certain criteria), or the new Government established central scheme. The introduction of these new regulations also removes the requirement to have in place stakeholder pension requirements. The Act also changes the powers of the Pensions Regulator, introduces new anti-avoidance powers, increases the state pension age and allows compensation payable from the Pension Protection Fund to be included in a pension-sharing order on divorce.

 

When will these changes take place?

The various amendments made by the Pensions Act 2011 will come into force from 1 October 2012. From then on there will be a staging process, which will continue until 1 February 2018. As laid out by the Department of Work and Pensions, all UK employers will have to comply with different dates, depending on their size.

 

What should employers do to comply with the changes?

Employers will need to determine which qualifying pension scheme they wish to use and then auto-enrol qualifying employees in that scheme. Employers will be required to provide employees with specific information about the scheme, such as details of tax relief. It is unlawful for an employer to ask an interviewee if they plan to opt out of the auto-enrolment system.

 

What are the consequences of non-compliance?

If the employer fails to comply with the new legislative requirements, the Pensions Regulator may issue specific sanctions. For example, the Regulator may issue a formal compliance notice. Failure to amend the irregularity could result in a financial penalty of up to £400 per infringement. If an employer makes a significant breach then escalated financial penalties may be applied. The penalty fee will vary depending on the relative size of the workforce. The larger the workforce, the larger the fine that may be imposed.

 

How can employers prepare for these changes?

Employers can prepare for these changes in a number of ways. Firstly, by confirming the date by which they must comply with the new scheme (this may be as early as 1 October 2012 for businesses with more than 250 employees). Secondly, they must assess the current workforce in order to determine who qualifies for the auto-enrolment scheme. Employers will need to ensure whether their current scheme complies with the new regulations and make changes if not. Notice will then need to be given to the workforce with regards to the conditions of the new scheme and an auto-payment process should be set up to guarantee correct contributions are made. Once a compliant scheme is established it is advisable to keep a record of when the procedures are put in place and also to register the scheme with the Pensions Regulator.

For further advice on how these pension law updates will affect you and your workforce or for further information as to how you can ensure you are compliant with the changes to employer pension duties, please contact Helen Watson on 01244 405565 or email [email protected].

 

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