Preparing for Employer Duties in 2012
The Pensions Act 2008 (the Act) provided a basic outline of the new “employer duties” framework, which is expected to come into force in 2012. Key elements of the framework include the following employer requirements:
- To automatically enrol all jobholders into a qualifying pension scheme.
- To pay a minimum level of employer contribution into this scheme, with a top up contribution from members, if needed, to reach a specified overall total.
Jobholders are any employees who earn a minimum amount (at least £5,035 p.a. in 2006/07 terms) and are aged between 22 and State Pension Age (SPA).
Draft regulations published in September 2009 revealed the following proposed transitional arrangements for minimum contributions:
|
Period |
Duration / date |
Minimum requirements |
|
First transitional period |
Years 1-3 Oct 2012 to Sept 2015 |
Total contributions must be at least 2%, employers must pay at least 1% |
|
Second transitional period |
Year 4 Oct 2015 to Sept 2016 |
Total contributions must be at least 5%, employers must pay at least 2% |
|
Steady state |
Year 5 Oct 2016 onwards |
Total contributions must be at least 8%, employers must pay at least 3% |
Employers existing pension schemes may be deemed “qualifying schemes” if they meet certain minimum requirements. A jobholder can opt out of the scheme within one month of enrolment, with any contributions paid returned.
Employers should assess how these proposals could impact on their business costs and start considering any changes that may need to be made to scheme design, scheme administration, and HR and payroll processes.
Punter Southall’s DC Consulting team can support employers by:
- Projecting the cost of complying with the new minimum contribution requirements under a variety of different scenarios. Parameters that can be varied include pension take up rates, contribution structures, scheme designs, salary increases and staff turnover rates
- Reviewing existing arrangements to assess their suitability as “qualifying schemes”, and assessing other alternatives to the central personal accounts scheme
- Providing advice on the contribution structure and scheme design
- Assisting with the establishment of HR and payroll procedures to cope with the new auto-enrolment requirements
- Ensuring pension provision is both affordable and appropriate for the workforce
- Leading clear and effective communication of the changes to pension arrangements to employees.
For further information contact Damian Stancombe by email or on 020 7839 8600.
