Solicitor Sarah Henderson looks at the implications for employers of the imminent introduction of pension auto-enrolment.
Q What are the plans for workplace pension reform?
Starting in 2012, employers will be required to enrol their "eligible jobholders" into a qualifying pension scheme and make minimum levels of employer contribution in respect of those jobholders. Eligible jobholders are workers employed under a UK contract of employment (or working under certain other contractual arrangements) between the ages of 22 and state pension age (SPA) who earn more than the minimum "earnings threshold" (currently £7,475). Once enrolled, eligible jobholders will have a period of time during which they can opt out of membership, subject to an obligation on their employer to re-enrol them every three years.
Q When does the auto-enrolment duty come into force?
The new auto-enrolment duty will come into force in stages between October 2012 and March 2016, starting with larger employers first.
A press release from the Department for Work and Pensions (DWP) on 28 November 2011 indicated that this "staging" timetable will be altered for employers with fewer than 50 employees. These employers will be "staged in" from May 2015 onwards, rather than from April 2014 as currently planned. It is also envisaged that employers with between 50 and 3,000 employees may see their staging dates revised slightly as a result of the changes to the small-employer timetable.
Minimum contribution levels will also be phased in to help employers and jobholders adjust gradually to the additional costs of the reforms. For defined-contribution (DC) schemes, the current minimum contribution requirements are that:
- during the staging period (October 2012 to September 2016) the total contribution level will be 2%, with a minimum of 1% coming from the employer;
- for one year following the end of staging (from October 2016 to September 2017) the total contribution level will be 5%, with a minimum of 2% coming from the employer; and
- from October 2017 the total contribution level will be 8%, with a minimum of 3% coming from the employer.
The DWP's 28 November statement says that contribution levels required for DC schemes will remain unc