New pension scheme
The new pension scheme means more safety for employees and more responsibility for employers. Find out more today
Workplace pensions have undergone significant changes over the last few years. Ideas from behavioural economics have become de-rigueur in contemporary political thinking, influencing policy-makers to adopt ‘nudge theory’ as a means of indirectly influencing people to make personally beneficial decisions.
People are notoriously bad at putting money into their pension pots, even when shown the future financial benefits and with generous workplace pensions available – but they are also less likely to choose to leave something than they are to choose to join it. As a result, workplace pension schemes are now opt out, rather than opt in, ensuring all UK workers are paying towards their futures whether they like it or not.
But what does this mean for businesses? It means that businesses of all sizes are now legally required to automatically enrol everyone they hire into a pension scheme from their very first employee if they meet the following criteria:
- They’re classed as a ‘worker’
- They’re between age 22 and State Pension age
- They earn at least £10,000 a year
- They “usually” work in the UK
New pension scheme fund
Auto-enrolment is here whether you like it or not, and as long as you brush up on the new pensions regulations and act quickly you won’t get fined. Although it can seem intimidating from the outside, there are many online platforms available to help you sign up everyone form your first employee to your last.
The first thing you need to do is register as an employer through HM Revenue and Customs (HMRC) up to four weeks before your new staff member receives their first payment. Auto-enrolment platforms can help you cope with the time-consuming admin of setting up a workplace pension, and help you deal with the red tape involved.
Remember: Account for the fact that the process can take up to two weeks and you’re unable to register more than two months before you start paying your new staff.
The cost of setting up an auto-enrolment pension scheme will vary depending on how many staff you employ and the external adviser or provider you use.
Once you’ve set up a workplace pension scheme, your employees will be automatically enrolled – unless they choose to opt out – and you’ll pay contributions on their behalf from their salary for as long as they’re in your employment.
The qualifying bracket for the workplace pension scheme is between £5,876 and up to £45,000. Currently, to remain compliant, you as an employer must contribute an amount equal to 1% of an employee’s salary with every pay check. This will rise to 2% of their salary by 6 April 2018, before hitting 3% from 6 April 2019 onwards.
Once an employee is in a workplace pension scheme, they have a one-month window in which to opt out to receive a refund. They are able to opt out after this window has closed but may not be able to claim a refund.
An employee is automatically enrolled in the scheme every three years and will be notified every time this happens. However, you don’t have to re-enrol an employee if they choose to leave the scheme in the 12 months before the date they would have re-enrolled.
An employee is also able to reduce the amount they pay into their workplace pension for a short period of time – how long this is possible for is dependent on either an employer or pension provider.
There are cases where your employee isn’t eligible for a workplace pension scheme. Such as:
- They’re quitting
- They have lifetime allowance protection
- They already have a pension arranged
- They receive a lump sum payment from a closed scheme and leave and rejoin the same job within 12 months of that payment
- They’re from another EU member state and are part of the EU cross-border pension scheme
- They’re in a limited liability partnership
- They’re a director without an employment contract
- You don’t have to enrol yourself if you are self-employed
New pension scheme start date
The first staging date – the date by which a company’s auto-enrolment duties come into effect – was on October 1 2012, with subsequent dates taking place on the first of every month from then on.
The staging date relates to when you became an employer and how many employees you have.
October 1 2017 marked the start of duties start date, where any business hiring staff for the first time – even if it’s just one employee – must enrol them in a workplace pension scheme if they meet the criteria outlined above. From now on, staging dates will no longer be given out.
Remember: Missing your staging date could result in severe financial penalties.
As a result of regulatory changes, pensions should be at the forefront of your mind when you start a business, especially if you’re planning on taking on staff straight away. Don’t delay going through the preliminary stages and nominate a senior contact to The Pensions Regulator as soon as possible. After you have enrolled staff, you have five months (from your staging date or duties start date) to tell The Pensions Regulator that you are fully compliant. You can do this by completing a declaration of compliance.
The Pensions Regulator operates a staging date calculator. All you need is your PAYE reference to find out your staging date.
You won’t have a staging date if you started to pay PAYE income on or after 1 October 2017, or you don’t operate a PAYE scheme and your first employee was hired on or after 1 April 2017.
New pension scheme benefits
The main benefit of a workplace pension scheme for businesses is that you won’t be breaking the law if you sign up.
As the new workplace pension scheme is opt out instead of opt-in, more of your workers will benefit from added savings to their pension, meaning they will be lining their pockets for their retirement. People are often reticent about putting money aside for their pension: it can be difficult to justify waiting 40 years or more to spend your hard-earned cash when you have a pressing need for it now.