Workplace Pension Reforms – October 2012 – An Early Warning Guide

What are the Workplace Pension Reforms 2012?

People are living longer, which means that they will now spend more time in retirement and must therefore plan to save more for these later years. A recent government estimate suggests that nearly seven million people are not saving enough to meet their aspirations in retirement. As a result, the government is making changes to the pension system in 2012 to encourage more people to save into a private pension.

From 2012 employers will be required to automatically enrol all eligible job holders into a qualifying workplace pension and to make minimum contributions into it. Below, Mitchell Charlesworth answer some of the most common questions regarding the pension reforms and what your business will have to do to comply with the legislation:

Workplace Pensions

What will be expected of employers from October 2012?

From October 2012, employers will have to:

i. Register with the Pensions Regulator from the employer's pre-determined 'Staging Date'. This date is based on size of the employer's workforce at April 2012.

ii. Provide the Pensions Regulator (TPR) with detailed information about their workforce, their Qualifying Workplace Pension scheme (QWPS) and the statistics of joiners, optouts (employees who do not want to be part of the workplace scheme) and refunds.

iii. Auto-enrol eligible jobholders into the 'QWPS'

iv. Contribute to the scheme on behalf of employees. This will eventually be at a level of 3% of income (salary + all other earnings, including benefits, bonus and overtime) between certain limits.

v. The arrangements for re-enrolment of the opted-out members will need to be reported at this time.

vi. Employers will have to re-enrol all employees who opted-out every 3 years.

vii. The records will have to be updated monthly and new employees added to the system as they join. Records will have to be available to be reviewed by the Inspectors from the Pensions Regulator when they visit.

viii. For those employers who do not wish to establish a 'QWPS' there is a new Government established scheme, NEST (National Employment Savings Trust) which will be available for companies. NEST is specifically aimed at those companies with large numbers of workers, a high turnover and low average wage. The range of facilities is limited but it will be suitable for some employers.

How will the Pension Reforms affect employees?

Employees, as well as the employer, will also have to contribute to their pension fund. This will eventually be at a level of 4% of the same salary band.

It is important to note that employees will be able to opt-out of the pension membership if they wish.

However, employers must re-enrol all employees who opted-out of the scheme every three years.

What will happen if employers do not comply with the Pension Reforms?

The Pensions Regulator (who will enforce compliance with the legislation) will police these reforms by employing teams of inspectors who will visit employers to ensure that employees are being correctly auto-enrolled into Qualifying Workplace Pension schemes (QWPS). These inspectors will also check that those employees who choose to 'opt-out' have not been induced or encouraged by the employers into doing so.

Large fines will be imposed on employers who do not comply with this new legislation. It is important to note that there will be no exemptions for small businesses and the reforms must be applied, even if you employ just one person.

What can employers do to make sure that they are not penalised?

Crucially, you must ensure that records regarding pension schemes are actually kept, that they are up to date and that you have the right systems in place to re-enrol all the opted-out employees.

How can Mitchell Charlesworth help your business or clients?

1.    Many employers will need help to work out the true costs and implications of the Workplace Pension Reforms for their business. Mitchell Charlesworth will provide an initial report (following consultation with the employer) which will identify all the eligible, non-eligible and qualifying jobholders. Once we have done this, we can identify qualifying earnings and calculate your company's liability under the new regime.

2.    Many employers will actually need to establish a QWPS for the first time. Mitchell Charlesworth can help you establish a scheme (if none exists) or ensure that an existing scheme can be modified to become a QWPS.

3.    Once you have established a workplace pension scheme, we will then help you to establish the administration and record-keeping of the scheme to make sure that you continue to comply with the legislation and report correctly to the Pensions Regulator as required under the new rules.

For more information:

Mitchell Charlesworth will be releasing more detailed information about the Workplace Pension Reforms as the deadline approaches. Now is the time, however, to start planning and budgeting for the changes to ensure that your additional expenditure can be correctly built into your employees' remuneration packages.

Contact our Financial Services department on tel: 0151 255 2300 to find out how we can help your business or clients manage the pension reforms efficiently and effectively whilst complying with the legislation. Alternatively, complete a quick enquiry form.

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