Pensions - Employer Obligations

This Fact Sheet summarises the main legislative provisions requiring Employers to provide access to certain Pension Schemes.  It does not cover the detailed aspects of the rules under which any pension schemes operate, nor does it provide any form of financial advice.

Stakeholder Pension Schemes

Stakeholder Pension Schemes began operating on 6 April 2001 and a legal requirement upon Employers to provide access to a Stakeholder Scheme for their Employees came into effect from 8 October 2001.  However, under the Pensions Act 2008, employers are no longer obliged to provide access to a Stakeholder Scheme with effect from 1 October 2012 but can continue to provide access where there is already an existing scheme.

Please note that in TUPE transfers where the transferor employer operated an occupational pension scheme, regulations require the transferee employer to provide or set up one of only three possible alternative pension’s arrangements. Two of these alternatives are occupational pension schemes and the third alternative is a Stakeholder Scheme into which "relevant contributions" must be paid. Please seek specialist legal advice in such TUPE transfers.

Pensions reform and auto-enrolment

From 1 October 2012 (subject to staging dates as set out below) all employers of United Kingdom based workers will be required to automatically enrol "eligible jobholders" (defined below) in a workplace pension scheme. They will be able to use their own existing occupational pension scheme or personal pension scheme if it is a "qualifying scheme", i.e. it meets statutory quality requirements. Otherwise, they will have to provide a new "qualifying scheme" or an "automatic enrolment scheme" (again defined below) in order to comply with their statutory duties. Another option is to enrol jobholders in NEST, a centralised occupational pension scheme to be set up by the government, which has a statutory obligation to accept all employers who apply to be a participating employer for auto-enrolment purposes.

Please note that "worker" has a wider meaning than "employee". The precise status of each worker must be checked in advance of the staging date.

The table below summarises the staging dates by employer sizes, as determined by employers' PAYE data as at 1 April 2012. More detailed provisions are set out in guidance issued by the Pensions Regulator.

Auto-enrolment requirements

With effect from 1 July 2012, employers are prohibited from inducing workers or prospective workers to opt out of auto-enrolment. These prohibitions apply in relation to all workers regardless of their status and even if the employer has not yet reached its staging date.

From the assigned "staging date" an employer will be required to:

• monitor all workers on a payroll by payroll basis to check their classification as "entitled worker", "non-eligible jobholder" and "eligible jobholder" and take appropriate actions;
• provide a workplace pension scheme for "entitled workers" who wish to join, but will not be required to pay employer contributions;
• provide an "automatic enrolment scheme" for all "non-eligible jobholders" who wish to opt-in (unless they are already a member of a "qualifying scheme"), and will be required to pay at least the statutory level of employer contributions;
• automatically enrol all "eligible jobholders" into an "automatic enrolment scheme" (unless they are already a member of a "qualifying scheme" on their automatic enrolment date), and will be required to pay at least the statutory level of employer contributions;
• provide all "entitled workers", "non-eligible jobholders" and "eligible jobholders" with prescribed information about their workplace pension schemes, their rights and options, within prescribed deadlines, including informing all "eligible jobholders" that:-
  • they have been automatically enrolled; and
  • they have the right to opt out if they want to do so within a prescribed "opt-out window".
• provide the Pensions Regulator with a declaration of compliance within a prescribed deadline and give the Pensions Regulator details of the "qualifying scheme" and the number of people that have been automatically enrolled.

Definitions

A "worker" is an employee or someone who has a contract to perform work or services personally that is not undertaking the work as part of their own business.

An "entitled worker" is a worker who is aged between 16 and 74, is working or ordinarily works in the UK under their contract, and does not have "qualifying earnings".

A "non-eligible jobholder" is a worker who:

• is aged between 16 and 21 or state pension age and 74 and has "qualifying earnings" above the earnings trigger for automatic enrolment; or
• is aged between 16 and 74 and has "qualifying earnings" below the earnings trigger for automatic enrolment.

An "eligible jobholder" is defined as a worker who meets the following three conditions:

• Works (or ordinarily works) in the United Kingdom. This will include temporary workers. The definition of "jobholder" also includes directors who are employed under a service contract; non-executive directors will therefore not automatically be covered.
• Is aged at least 22 and is under state pension age.
• Is paid "qualifying earnings" by an employer. Earnings includes bonuses, overtime and statutory maternity, paternity or adoption pay. The earnings trigger is set at £10,000 per annum for the tax year 2014-2015 and this will be reviewed annually by the Government.

A "qualifying scheme" is a scheme that meets certain minimum requirements (the "qualifying criteria"). For a UK pension scheme to be a "qualifying scheme" it must:

• be an occupational or personal pension scheme;
• be tax registered; and
• satisfy certain minimum requirements which differ according to the type of pension scheme.

​There are different rules for non-UK pension schemes.

An "automatic enrolment scheme" is a scheme that meets the qualifying criteria with some additional features (the "automatic enrolment criteria") which means the employer can use it for automatic enrolment. In particular, it must not contain any provisions that:

• prevent the employer from making the required arrangements to automatically enrol, opt in or re-enrol a jobholder; or
• require the jobholder to express a choice in relation to any matter, or to provide any information, in order to become an active member.

 Application

The legal requirements cover England, Scotland and Wales.  Northern Ireland has its own equivalent legislation.  Where an Employer is resident or incorporated in the United Kingdom, workers who are based outside the United Kingdom are also covered unless they are subject to local social and tax laws.

Further information

The Pensions Regulator (www.pensionsregulator.gov.uk) has further information and guidance regarding auto-enrolment.