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Pensions Reform: forthcoming changes in legislation affecting employers

In July 2012 all employers will become subject to the first part of the Pensions Reform legislation: safeguarding individuals.

The law on the new employer duties and safeguards will commence from July 2012.

Starting in 2012 employers will become subject to new legislation requiring them to provide pension schemes for workers who would otherwise have no access to an approved pension scheme. Employees that meet certain criteria, who have earnings above a qualifying amount, and are not currently paying into an approved pension scheme, will be automatically enrolled into an approved pension scheme unless they opt out of this arrangement. The dates by which new pension schemes must start will depend on the number of employees and some other factors (see the table below).

Safeguards have been put in place before the new pension schemes start to protect individual employees or prospective employees. These apply to jobholders, entitled workers and also extend to job applicants.

An employer must not take, or fail to take, any action that results in a jobholder ceasing active membership of a qualifying pension scheme, or which results in such a scheme ceasing to be a qualifying scheme.

It is important that any jobholder’s or entitled worker’s decision to opt out of, or leave, their pension scheme without joining another should be taken freely and without influence by the employer. (An entitled worker is one who has a right to join to an approved pension scheme, but who has insufficient earnings to qualify for automatic enrolment.)

An employer must not try to screen job applicants on grounds relating to potential pension scheme membership – this is known as prohibited recruitment conduct.

This legislation takes effect in advance of the introduction of the new workplace pension scheme regulations. Employers with over 120,000 employees must offer their employees a compliant pension scheme by October 2012. The latest dates by which small employers with fewer than 50 employees must offer a compliant pension scheme are between 1 June 2015 and 1 April 2017 depending on the PAYE reference number. Under the new scheme employers must offer employees membership of a pension scheme in which total contributions are at least 8% of qualifying earnings and the employer's contribution is at least 3% of qualifying earnings. ‘Qualifying earnings’ is a reference to employee earnings between £5,035 and £33,540 p.a.