Are businesses prepared for Pension Reform 2012?

Background

The 2007 and 2008 Pension Acts have together introduced the most fundamental change to the UK pension system for over fifty years. From 2012 all employers will be required to make a Qualifying Workplace Pension Scheme available to their employees and to auto-enroll eligible employees into such schemes. They will also be required to pay contributions towards their enrolled employees’ pensions. These new arrangements represent a significant administrative burden for large and smaller employers alike.

What will employers need to do?

Every employer in the UK has now been issued with a staging date - the date on which it will need to enrol all qualifying employees into a qualifying pension scheme. Even if an employee does not want to contribute or join, the employer must opt them in to their scheme and then allow the employee to opt out with the pension provider, who will then also need to notify the employer.

Ongoing administration

Exactly three years later, the employer must opt any employees who initially opted out back into the pension scheme, again with the employee then having to opt back out with the pension provider should they not wish to participate. Documentary evidence of the “opt in and out” process must be retained by the employer for 6 years. The employer will also need to identify all qualifying staff (by age and total earnings) and determine which of the eight different types of ‘worker’ categories employees may fall into.

What are the hard costs?

As well as the administrative costs, there is a compulsory employer contribution rising to 3% of qualifying earnings and significant financial penalties if employers do not comply with their responsibilities. Penalties will vary according to the size of the business but the initial fine for employers who fail to register by their staging date will be £400. Businesses with less than four employees can incur non-compliance penalties of £50 per day, rising to £10,000 a day for the largest employers.

What now?

For more information on how these changes may impact your business, Cobia will be hosting a free Pension Reform seminar in London on the 7th December 2011.  To reserve your place at the seminar, please contact Minesh Gandhi by email on minesh.gandhi@cobia-uk.com or phone 01582 390003.