Pension Reforms: New Employer Duty (including Auto-Enrolment)
The new employer duty is planned to come into force from 2012. Under this duty, employers will have to:
- enrol workers into qualifying workplace pension arrangements;
- choose the qualifying scheme(s) they adopt to discharge the newly arising duty;
- make a minimum 3% contribution towards a money purchase pension (based on qualifying pensionable earnings) or offer membership of a defined benefits scheme with equivalent or better benefits.
Employers will also have an ongoing duty to maintain qualifying pension provision for workers who;
- are already members of qualifying schemes; or
- become members of such schemes.
Auto-enrolment will mean workers being automatically enrolled into their employer’s qualifying pension scheme without any active decision on their part. At present, many workers fail to take up valuable pension benefits because they do not make an application to join their employer’s scheme. Auto-enrolment is meant to overcome this.
From 2012, all eligible workers will have to be auto-enrolled into a qualifying pension scheme. Employers will choose the qualifying scheme they use, which could include the proposed new personal accounts scheme. Each qualifying scheme must meet minimum standards in respect of the benefits it provides or the amount of contributions paid to it. The scheme must also provide auto-enrolment for all eligible workers, and for all new workers when they become eligible.
Employers who provide money purchase pension schemes will be required to pay compulsory employer contributions into the scheme.
Employer contributions will be phased in, so that the burden on employers is minimised.
The employer contribution rate will be set out in primary legislation to ensure they are certain about their responsibilities
Opting Out
Workers will be able to opt-out of their employer’s scheme if they choose not to participate. Workers who give notice during the formal opt-out period will be put back in the position they would have been in if they had not become members in the first place, which may include a refund of any contributions taken following automatic enrolment.
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