Workplace Pension Reforms

The 1st of October 2012 brought the introduction of the most far reaching pension legislation to impact on UK employers to date - the Workplace Pension Reform.

Pensions Bill Receive Royal Assent

So far, only large companies in the UK with over 30,000 employees have been affected, however this legislation will eventually apply to every company at some point over the next four years. Regardless of whether or not you already have a group pension arrangement for your employees, there are many items to consider to ensure your company complies with the new requirements. The penalties for not fulfilling these requirements could result in significant fines, so it's worthwhile reminding you of your obligations in order to avoid these fines.

"Staging Date"

From what the industry is calling your "Staging Date", there are the three fundamental requirements that everyone must adhere to:

  • You must provide a qualifying workplace pension scheme for your employees

  • Auto-enrol all "eligible jobholders" into this scheme

  • Contribute minimum levels of employer and employee contributions - there are various options available to you, depending on which salary you base the minimum level on

Further considerations

However, this is just the start and, as with most things, the devil is in the detail. When you start to delve deeper into the numerous employer responsibilities, there are many more items to consider such as:

  • Providing eligible jobholders with written confirmation as to when they will be auto-enrolled into the pension scheme, and what the contributions will be going forward

  • Processing opt-outs of the pension scheme, and making the necessary refunds within a pre-determined time frame

  • On each third anniversary of your Staging Date, re-enrolling any eligible jobholders who opted out of the pension scheme in the first two years of the three year period

  • Enrolling anyone who becomes an "eligible jobholder"

Planning ahead

Although your Staging Date may be some time away, employers who have investigated the full extent of the requirements have determined that a minimum of 12 months planning time (prior to the Staging Date) should be put aside. Employers need this time to consider the options available and to make the right decisions for the business such as:

  • Which minimum contribution basis is right for your business?

  • Do you wish to utilise the postponement option on auto-enrolment?

  • Which pension provider is right for you and your employees?

  • How are you going to deal with variable earners/part-timers (this category of employee may dip in and out of being classed as an eligible jobholder)?

  • How are you going to communicate all of this to your employees?

  • Put simply, there's a lot to consider and getting advice to ensure you make the right decisions is critical

Below is a Case Study, based on a real life client of Towergate Financial, which will give you an overview on how a medium sized company in the care industry will be tackling the various requirements under Pension Reform.

Workplace Pension Reform: Case Study

Company A is based in the Midlands and they provide long term care for mentally handicapped young adults. They currently have just over 260 employees and their occupations include professional carers, nursing staff, maintenance personnel and management.

Their total payroll is in excess of £3.5 million and due to the nature of the industry, certain parts of the workforce can be transient and/or low paid. They have two group pension arrangements in place for their staff. The first, where employer contributions are made, is offered to management grade only. The second is a Group Stakeholder Pension, where no employer contributions are made and is offered to all other employees. With the new Workplace Pension Reform legislation in place there was a lot to consider.

Towergate Financial was able to assist this company by:

  • Confirming their Staging Date to determine when this legislation would impact them.

  • Analysing their payroll to establish which of the four minimum contribution level options were best for the company. The company decided to adopt different options for the different categories of staff.

  • Determining that the existing schemes did not offer value for money for its members, so Towergate Financial reviewed the market for a replacement. A "Two Scheme Strategy" was recommended so that a certain portion of the workforce would enter one scheme, whilst the remaining transient employees would enter the other scheme. This ensured those in the first scheme were not detrimentally affected by higher charges if the higher transient workers were placed in the same scheme i.e. they'd get better value for money.

  • Determining that Postponement should be implemented to ensure that anyone who leaves in the first three months of employment does not need to be auto-enrolled into the scheme.

Although the company is just over a year away from their Staging Date, they wanted to start the planning stage early to ensure they have sufficient time to put the processes in place to comply with the Workplace Pension Reform legislation.

The above is a high level overview of the service provided for this client, and it should be noted that it took over six months before the company could start making informed decisions on the group pension arrangements.

We have access to Towergate Financial who can provide independent and comprehensive advice to employers on this matter.

For further information please contact an adviser at Towergate on 020 8336 0099 who will put you in touch with a qualified and experienced corporate adviser. Alternatively, you can send us an email at careinsurance@towergate.co.uk

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