Compulsory pension provision for all business
Between 2012 and 2016 the Government will phase in a new pension scheme – the "National Employment Savings Trust" (NEST) which will require all businesses to contribute towards the pensions of those staff who are paying into a fund. The changes mean that most employees will have to opt out of a pension rather than opt in, as the current arrangements require.
Employers must re-enrol jobholders who choose to opt out at least every three years
NEST will be phased in over four years, starting from 2012 for the very largest employers (those with more than 120,000 staff). If you have fewer than 50 staff, the date you will need to start paying will depend on your employer's PAYE code. It could be as early as March 2014 or as late as February 2016, by which time all existing businesses and staff must be contributing.
All jobholders aged at least 22 years old who have not yet reached State Pension age and are earning more than £7,475 qualify to be automatically enrolled into their employer's workplace pension. If the employee does not want a pension arrangement, he/she must opt out of it.
Those aged between 16 and 22 and those aged between State Pension Age and 75 (provided they earn more than £7,475) will be able to opt into a pension and receive employer contributions. Employees earning below £7,475 a year may opt in, however the employer will not be required to make a contribution, but may choose to do so
An employer will be required to contribute at least 3% against band earnings when the scheme is fully implemented - band earnings are between £5,745 and £33,540 (These figures are expected to be updated with impending legislation)
It will be possible to gain an exemption from NEST if you offer a pension scheme that meets the following criteria:
• The scheme permits auto-enrolment
• Has a minimum contribution rate of 8%
(including at least 3% from the company)
• Has a default investment fund
Under current legislation, employees cannot be auto-enrolled into a group personal pension or group stakeholder pension scheme. But this will be amended by 2012.
Enrolment into the scheme will be staged between October 2012 and February 2016.
Large employers will be brought in first, followed by medium and then small firms. New businesses that are set-up between April 2012 and March 2016 will be brought in at the end of the staging period.
Any employer choosing to bring forward their automatic enrolment date must inform the Pensions Regulator of their intention to do so and be in a position to demonstrate they are ready to discharge their new duties.
Employers will be given three months' grace to enrol their staff in either their own scheme - with compulsory minimum employer contributions - or enrol them in Nest instead. This is intended to cover the use of temporary staff.
The minimum contribution level will be phased-in. For Defined Contribution schemes, the minimum contribution requirements are:
Phase Duration Employer minimum contribution Total minimum contribution
1 1 Oct 2012 to 30 Sep 2016 1% 2%
2 1 Oct 2016 to 30 Sep 2017 2% 5%
3 1 October 2017 onwards 3% 8%
Staging dates – THIS TELLS YOU WHEN THE SCHEME AFFECTS YOUR COMPANY