A Brief Guide to Workplace Pensions

Starting from October 2012, businesses in the UK were legally required to automatically enrol their employees in workplace pension schemes. The new law applies to all businesses although the timing of enrollment depends on each business. Here is a brief guide as to what to expect from the changes and how they affect your business.

When?

By 2018, every business in the UK will be affected. The roll-out is staggered between 2012 and 2018, with the largest businesses starting first. You can check when your business is required to make the change here.

What?

The employer must automatically enrol their employees in to an approved pension scheme then pay at least a certain minimum contribution to the scheme, alongside which the employee and also the government will contribute. The employer must however allow the employee to opt out voluntarily within the first month of the employee joining the scheme, then give the employee the chance at least once each year to re-enrol. If the employee is opted out, the employer must automatically re-enrol them every 3 years.

Once the employee has been enrolled, the employer must notify the employee in writing of the following:

• The date the employee was enrolled in the scheme
• The type of scheme and the pension operator
• The amounts to be contributed by both the employer and the employee
• How to opt out of the scheme

It is also possible for the employee to choose to contribute an additional amount to the scheme, which comes directly from their salary. This allows the employee to defer or exempt themselves from a certain amount of tax and National Insurance on the income that is sacrificed to the pension scheme.

Who?

Every employer must automatically enrol each employee in to an approved scheme, provided that the employee:

• works in the UK;
• is aged between 22 and the state pension age; and
• earns at least £9,440 per year.

If the employee does not fit the criteria, the employer must still allow the employee to join the scheme if they want to.

Employers are not allowed to encourage employees to opt out of a scheme or discriminate against an employee in any way due to their pension preferences.

For more information on pensions or auto-enrollment, visit the Pensions Regulator website.

Our employment contract template, director service agreement template, and zero hours contract template were all recently updated to reflect these changes to workplace pensions and now contain a clause regarding auto-enrollment.