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Legal Insight: How to prepare for pensions auto-enrolment

23rd Aug 2012
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From 1 October this year, large employers will be compelled to start enrolling staff into workplace pension schemes.

Although the exact impact is as yet unknown, it is thought that as many as 10 million UK workers who do not already have a pension, are aged 22 or over, are under state pension age and earn more than £8,105 per annum will eventually be included in such schemes for the first time.   While personnel can opt out if they so choose, there is an on-going obligation on both parties to revisit such a decision at regular intervals. But those employers who already provide work pension schemes that meet government standards will not need to do anything else.   The exact start date for a particular organisation to become involved in auto-enrolment depends on the number of UK-based staff that they employ.   Those with more than 120,000 staff will start this October, with further roll-out based on size taking place over the next few years. The last ones to join will be companies with fewer than 30 employees – they have until April 2017 to prepare themselves.   Nonetheless, there are a number of steps that employers of all sizes can take to prepare themselves for auto enrolment now. To this end, they would be advised to:  

  • Decide which pension scheme they wish their workers to be automatically enrolled into. Options include existing schemes or alternatives such as the National Employment Savings Trust or NEST
  • Calculate "qualifying earnings" levels. Auto enrolment is based on employers and employees making a certain percentage contribution to a pension fund based on earnings. Not all payment qualifies as "earnings", however, and there may be particular difficulties if an employee's income tends to vary
  • Recognise that employers can postpone the start of auto enrolment for up to three months. Such a scenario may be worth considering if they need extra time to integrate the new rules into their payroll system
  • Start keeping the additional records that will be legally required for compliance purposes. These can take either electronic or paper form, but must be legible and easily reproduced. In some instances, additional information such as the birth dates of casual workers may have to be gathered, while in others, data cleansing may be required
  • Review current terms and conditions as well as any existing pension documentation as the information could be out-of-date
  • Audit current pension membership records to identify "specific cases" such as staff who already have personalised tax arrangements, in order to avoid potential costly disputes.

Catherine Wilson is a partner at law firm, Thomas Eggar LLP.

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