What are Workplace Pensions?
There are big changes afoot this year when it comes to workplace pensions. Back in 2008 the Pensions Act made it so that workers would have to opt out of workplace pensions rather than opt in, meaning that every employer in the UK must auto enrol certain staff into a pension scheme and contribute towards it. This year, that law comes into force.
The National Employment Savings Trust, or NEST, is the organisation that has been set up by the government specifically for this auto enrolment process.
Any eligible workers need to be enrolled automatically into a workplace pension scheme and as an employer, you must contribute to their pension pot. The current minimum contributions stands at 2% of a workers’ qualifying earnings, but this percentage is set to increase over the next few years. Employees are entitled to increase their contributions if they so wish.
Why Workplace Pensions?
It’s really important to begin saving for pensions as early as possible. With this initiative, it is hoped that workers will eventually have savings that will top up their state pensions later in life.
Who Do Workplace Pensions Apply To?
No matter how few or how many people you employ, you will now need to inform all the people you employ about the new workplace pension rules and offer all eligible workers a workplace pension. There are certain restrictions on who is eligible under this new scheme. Eligible workers are defined as follows:
- Employees who aren’t already in a qualifying pension scheme at work
- Employees aged at least 22 but under state pension age
- Employees working in the UK
- Employees earning more than £10,000 per year
Other workers who earn less than this figure or fall outside the age group are considered non-eligible or entitled. However, non-eligible workers can ask to be enrolled into the scheme. If they are, then employers must pay minimum contributions. Entitled workers can also ask to join the scheme, but employers do not need to contribute to their pension pots.
Tips & Resources
With the majority of SMEs never having offered company pensions before, the task ahead can seem daunting. But it’s really important to act now.
The process has been designed to make it as simple as possible for employers to navigate. If you have your staging date - the date by which you’re required by law to enrol your workers into a workplace pension scheme - then you can get started pretty easily by logging onto the Pensions Regulator site, which will then guide you through the process.
There are a lot of places to get more information on workplace pensions out there. We’ve compiled a shortlist of useful resources to help guide you through the process ahead:
Vital information on the legal changes and requirements that employers, business advisers, trustees and individuals must now be aware of and comply with.
NEST was set up by the government to ensure that employers could access high-quality workplace pension scheme for auto enrolment. It’s free to use for employers and its web services help to set up your auto enrolment pension scheme, enrol members and pay contributions directly from your payroll software to save you time on added admin. They also have resources such as a NEST phrasebook that contains clear communications to help workers understand pensions.
Don’t know what auto enrolment provider to choose? Look out for whether the scheme has adopted the master trust assurance framework, which means it has been independently assessed to have robot governance in place. The Pension Quality Mark is also an independent assessment of pension schemes. The Pensions and Lifetime Savings Association (PLSA) also conducts independent assessments of pension schemes and award a PQM READY status if it meets their high standards.
In addition, some providers and funds are more competitive than others. Here, the financial research group Defaqto have brought together sector knowledge to compare plans more fairly and impartially. As a result, they have created a report on how to analyse auto enrolment default funds, which you can find here.