There has been a lot of activity in respect of workplace pensions recently, with plenty of media coverage. We have many clients who are employers and are concerned about the implications for their business. Therefore, we thought it would be useful to outline how workplace pensions will affect small business.
What are Workplace Pensions?
They are the Government’s response to the realisation that not enough people are saving for their retirements, which is particularly relevant given that we have an aging population which will place much more stress on the Government coffers for the state pension.
What is the Idea?
The idea is that employees will be automatically enrolled into a pension scheme through their employer. They can choose, if they wish, to opt out.
When are they being introduced?
The first enrolment program started on 1 October 2012, but these affect the largest employers. Businesses who employee between 499 and 50 employees will be affected in 2014, and businesses with less than 50 employees will see auto enrolment between August 2014 and February 2016.
Who will be affected?
Employers have to automatically enrol workers who:
- Are not already in a qualifying workplace pension scheme;
- Are at least 22 years old;
- Are below state pension age;
- Earn more than £8,105 a year; and
- Work or ordinarily work in theUK (under their contract)
What are the employer’s duties?
Employers will need to:
- Automatically enrol certain workers into a pension scheme
- Make contributions on their workers’ behalf
- Register with The Pensions Regulator (‘the regulator’)
- Provide workers with certain information about the changes and how they will affect them.
Employers with an automatic enrolment duty will need to choose a pension scheme they can use for automatic enrolment. Information from the regulator will be available to help inform this decision later in the year.
What are the minimum contributions?
There are minimum contributions payable by both the employer and the employee, which are being increased over time:
| Total contribution required | Minimum employer contribution | Worker contribution | Tax relief | |
| October 2012 to September 2017 | 2% | 1% | 0.80% | 0.20% |
| October 2017 to September 2018 | 5% | 2% | 2.40% | 0.60% |
| October 2018 onwards | 8% | 3% | 4% | 1% |
These minimum contribution levels only apply to earnings over a minimum amount (currently £5,564) up to a maximum limit (currently £42,475). For example, if someone was earning £16,000 a year, the minimum percentages apply to £10,436 (the difference between £5,564 and £16,000). Overtime and bonus payments are included in your earnings.
More information, including a check as to when employers will be affected, can be found at Gov.uk and the Pensions Regulator.
Thanks to Joe McKenna of Clear Finance who provided assistance in writing this article.