The pensions auto-enrolment scheme, which started in October 2012, finished the staged process of enrolment in April 2017. All new employers must enrol their staff into a pension by February 2018 if those staff earn above £113 per week.
In addition to phased staging for employers, pension contributions payable are gradually phased and the next phase is to see an increase in contribution on 6th April 2018. The minimum required contribution is going to rise twice in the next two years:
These rates are the minimum required and the employer can set their own contributions at whatever rate above (and not below) the minimum requirements.
The dates are important as employers should also notify their employees that their contributions are going to go up.
An important requirement for employers is that the contributions deducted from staff's wages have to be paid into the scheme no later than the 22nd day of the following month. If employers do not pay in time, they risk being fined by the Pensions Regulator.
What is the effect of these requirements?
The Pension Regulator in their annual report has noted that approximately 78% of UK employees are in a workplace pension scheme. The annual total amount saved by eligible savers was £87.1 billion in 2016 – an increase of £3.8 billion on the total amount saved in 2015.
Aegon reveal that someone earning the average UK wage of £26,500 who met the basic requirements of the scheme and joined in October 2012, will have seen their pension pot after five years now worth £2,440.
With contribution rates increasing this pot will likely increase exponentially to a more substantial sum. With inflation and interest rates rising, the compulsory rise in contributions may lead to some employees opting-out of the schemes, especially if wages / salaries do not increase, due to economic pressures.
Beware of re-enrolment
In addition, re-enrolment may be on the way for some employers that began their workplace pension in 2012.
Re-enrolment involves every three years certain staff being put back into a pension scheme. Employers will need to assess certain staff who opted out of the scheme and work out if they need to put them back into the pension scheme. Organisations are given the flexibility to choose the re-enrolment date from within a six-month window, which starts three months before the third anniversary of their staging date and ends three months after it.
Employers will need to write to staff that are being re-enrolled to tell them what is happening. Once staff have been re-enrolled, employers will need to submit a re-declaration of compliance to the Pensions Regulator.
Risk of non-compliance
The Pensions Regulator is able not only to issue fines but to commence criminal prosecutions of individuals in charge of non-compliant employers, as was seen in the case of Stotts Tours (Oldham). The bus company should have put its staff into a workplace pension scheme and began paying pension contributions in June 2015. The Pensions Regulator decided that the company’s failure to comply with the law was deliberate and merited the criminal prosecution of both Stotts Tours (Oldham) and Alan Stott.
Both Stotts Tours (Oldham) and Alan Stott (its managing director) were prosecuted in the Brighton Magistrates’ Court and pleaded guilty to eight counts of wilful failure to comply with the automatic enrolment duty under the Pensions Act 2008. Also, the Regulator is separately pursuing Stotts Tours (Oldham) for £14,400 in civil fines which were imposed for non-compliance.
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