NEST & Employer Duties

The Government is bringing in new laws from 2012 that will have a significant impact on every employer in the UK.

Pension reform

There will be more pensioners in the future and those pensioners will live longer. This will put a massive strain on the State pension system. To alleviate this burden, the Pensions Acts 2007 and 2008 make changes to the Basic State Pension, the State Second Pension and introduced new employer duties for pensions.

The employer duties

From October 2012, employers will be required by law to:

• automatically enrol all their eligible employees not already in a good quality pension scheme into a Qualifying Workplace Pension Scheme (QWPS) on the day the employee becomes eligible, and
• pay contributions for every employee who does not opt-out of the QWPS.

Key facts

The framework for these new laws is already in place in the shape of the Pensions Act 2008.

• Employers will, for the first time, be required to automatically enrol eligible employees into a pension scheme.
• Employers will, for the first time, be required to pay pension contributions for any employees who join and stay in the pension scheme.
• The Pensions Regulator will police and enforce these new laws.
• Even if you have an existing workplace pension scheme, you may have to make changes so that it complies with the new laws.
• Employers can either use their own pension scheme to comply with these new laws or rely on a Government built scheme – the National Employment Savings Trust (NEST) scheme.

Timetable

The employer duties will be staged in over 4 years from 2012. Larger employers will have their duties imposed first, smaller employers last. Any employer with less than 50 employees will have their staging date set depending on the last two digits of their PAYE reference number.

Size of employer	Staging date
120,000 – 800	From 1st October 2012 to 1st October 2013
799 – 250	From 1st November 2013 to 1st February 2014
Less than 50 (sample)	On 1st March 2014
249 – 50	From 1st April 2014 to 1st July 2014
Less than 50	From 1st August 2014 to 1st February 2016
New businesses that start up  after October 2012	From 1st March 2016 to 1st September 2016

The costs

The amount of contributions that must be paid in order for a scheme to be treated as a QWPS is being phased in as follows:

Date	Total minimum   contribution %	Minimum employer  contribution %	Minimum difference to be made up by employee % (gross) *
October 2012 to September 2016	2%	1%	1%
October 2016 to September 2017	5%	2%	3%
October 2017 onwards	8%	3%	5%

The contributions will be based on a percentage of band earnings between £5,035 and £33,540 (qualifying earnings) at 2006/2007 levels. These amounts will be increased in line with earnings to 2012 and beyond.

* The minimum difference includes tax relief available on employee contributions.

Quality Qualifying Workplace Pension Scheme (QQWPS)

Employers can avoid much of the administration burden associated with automatic enrolment by setting up a QQWPS where:

• the total minimum contribution is 11% of qualifying earnings, of which
• at least 6% must come from the employer,
• there is no option to phase in contributions, and
• automatic enrolment dates can be postponed up to 90 days allowing a ‘sweep up’ of eligible employees all at once at the employer’s convenience.

Eligible employees:

All employees will have to be auto-enrolled unless:

• they are already in a qualifying workplace pension scheme,
• they are under the age of 22,
• they are over the State Pension Age, or
• they earn less than £7,475 a year (in 2006/2007 terms).

Employees can only ‘opt-out’ once they have been auto-enrolled. Non-eligible employees must be given the option of opting in to pension saving.

Responsibilities

Auto-enrolment is the responsibility of the employer, not the Government or the pensions industry. The Pensions Regulator will oversee employer compliance and has the power to fine employers for non-compliance.

Employers MUST:

Auto enrol and re-enrol/deduct payments, Register/re-register their scheme, Provide information to eligible and non-eligible jobholders, Provide information to scheme/provider, Process opt outs/make refunds and Keep records

Employers MUST NOT:

Offer advice, Discourage membership, Give jobholders the opt-out form, Encourage opt-outs or Use ‘Prohibited recruitment conduct’

The Penalties:

Stage 1 – Warning:                                   Compliance/unpaid contribution notice

Stage 2 – ‘Wake up call’:                           Fixed penalty – £400

Stage 3 – Persistent offenders:                Escalating penalty with a maximum of £5000 each day

DOING NOTHING IS NOT AN OPTION………..

The Pensions Act 2008, Section 45(2)

“A person guilty of an offence under this section is liable:-

a) on conviction on indictment, to imprisonment for a term not exceeding two years, or to a fine, or both;

b) on summary conviction to a fine not exceeding statutory maximum.”