Pensions: Countdown to 2012 – are you prepared?

Consultation recently closed on the latest in a series of papers dealing with the personal accounts and automatic enrolment reforms – ‘Workplace Pension Reform – Completing the Picture’. The document gives a fairly detailed picture of how the reforms are designed to work and how to start preparing for 2012. But what are the headline issues for employers? Pensions and legal expert Alison Cribbs runs through them.


Although the new obligations will be launched in October 2012 as previously announced, the intention is now to ‘stage’ implementation over a three-year period. The plan is to introduce the requirements for large and medium-sized employers over the first year, with small and micro-employers being brought in over the following two years. Given that larger employers are most likely to be geared up for the reforms, this seems a sensible way to deal with the practical aspects of bringing large numbers of employers within the regime.


In recognition of the costs of the new requirements, the principle of staging has been extended to the payment of contributions. The proposal is to phase in minimum contribution requirements over time to help employers and individuals adjust to the additional costs gradually. The minimum contribution for a qualifying defined contribution arrangement will not reach the long-term level of 8% (of which at least 3% must relate to employer contributions) until October 2016, with 2% being required from October 2012 and 5% from October 2015. On the basis that it is not possible to phase in contributions for defined benefit schemes, the proposal is to allow employers using defined benefit schemes to delay automatic enrolment until the staging period has ended. These allowances are likely to be welcomed by employers to allow them time to adjust to the new requirements.

Scheme closures

A further protective mechanism is proposed in relation to scheme closures, so that employers that close their scheme before the end of the transitional period must automatically enrol workers into an alternative scheme and back-pay missed employer contributions. Employers will need to factor this in to any changes to their pension arrangements.

Temporary workers

Although the Act allows employers to postpone automatic enrolment for a period of time where they offer high-quality schemes, the consultation envisages changes to prevent employers from using postponement for jobholders on short-term contracts of three months or less.

Managing opt-outs

The consultation includes a proposal to relax the normal 19-day rule for the payment of contributions deducted from a worker’s earnings to the trustees or managers of the scheme to the 19th day of the second month following the month of the jobholder’s automatic enrolment date. This means that contributions will not have to be passed over until after the opt-out period has ended, and responds to criticism raised during earlier consultation that having to pay over contributions and then subsequently refund them where a jobholder opts out creates significant burden and cost.

Penalties for non-compliance

Finally, employers should be aware that the reforms are backed up by a non-compliance regime and, in addition to issuing compliance notices and unpaid contribution notices, the Regulator can issue penalty notices of up to £10,000 per day under the proposals.

by Alison Cribbs, Sacker & Partners LLP

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