Over the last couple of years, you may have heard the words ‘Pension Reform’ and ‘Auto Enrolment’, but like many of the UK employers; you may still be wondering ‘How will this impact on my business and its employees?’. This information has been developed especially for SME’s to simply explain all you need to know as well as to provide an overview of what you need to do as an employer to prepare for the upcoming reform.
WHAT IS PENSION REFORM?
To put it simply, many people do not save enough for retirement. To address this issue, the govern¬ment is implementing reforms that will make it compulsory for all UK companies and employees to make a minimum contribution of 8% of “quali¬fying earnings” for each “job holder”. Qualifying earnings are those earnings currently falling be¬tween £5,715 and £38,185, including wages/sala¬ry, bonus, overtime, statutory sick pay, maternity/paternity pay etc. A job holder is an employee or worker who ordinarily works in Great Britain, is aged between 16 and 75 and has “qualifying earnings” – this includes agency workers, those under fixed-term contracts, part time workers and permanent staff. Your company size will determine your individual staging date and employ¬ers will eventually have to pay at least 3% of qualifying earnings with the remainder made up of a personal contribution and tax relief. All eligible job holders will need to be automatically enrolled through their employer; although individuals may “opt out” of the scheme should they wish to. If this so happens, you will need to re-enrol any individuals that do opt out every 3 years. In addition to making contributions, employers will be obliged to administer these arrangements by using either a private “qualifying scheme” or the low cost UK Pension Scheme “NESTs” (National Employment Savings Trust).
WHAT ARE THE IMPLICATIONS IF I DO NOT COMPLY?
Employers who do not make the necessary arrangements to auto-enrol employees into either a qualifying scheme or a NEST, or if they encourage employees to opt-out, will be subject to compliance notices, penalty notices and large fines. It is important to note that there will be no exemptions for small businesses and the reforms must be applied, even if you employ just one person.
WHAT DO I NEED TO DO AS A BUSINESS?
In summary, from October 2012 all employers will have to:• Make sure that their contributions to existing staff pension arrangements are “qualifying”; and/or• Make contributions to employees’ NESTs; and• Automatically enrol eligible employees aged between 22 and state pension age into a qualifying scheme or NEST; and• Give employees information about the qualifying scheme or NEST; and• Collect employee contributions via payroll
MINIMUM CONTRIBUTIONSIn summary, from October 2012 all employers will have to:The total contribution level to a NEST or qualifying scheme is 8% of qualifying earnings, made up of:• 4% from the jobholder’s net pay;• 1% from the Government (i.e. basic rate tax relief); and• 3% from the employer.
EXISTING PENSION ARRANGEMENTS AND CERTIFICATION In recognition that the ‘pensionable pay’ of current pension schemes is unlikely to be the same as ‘qualifying earnings’, employers will be able to certify that the scheme meets the requirements if:• Total pension contributions are at least 9% of pensionable pay (the employers paying at least 4%); or• Total pension contributions are at least 8% of pensionable pay (the employer paying at least 3%) and pensionable pay is at least 85% of the total pay bill; or• Total pension contributions are at least 7% of pensionable pay (the employer paying at least 3%) and pensionable pay equals total pay.
WE UNDERSTAND YOUR HEADACHEWe know that in the current difficult economic situation, most UK companies’ resources are stretched enough, and that the Pension Reform is another burden to deal with. If you have any questions or need any advice, we can help you develop a simple and efficient solution to ensure you comply with the Pension Reform rules and regulations and that the new contribution costs are manageable.
Assurex marshal's the experience, expertise, products and services of the world's most successful and respected independent risk management, commercial insurance and employee benefits professionals to provide you with unsurpassed service.