Qualifying UK employees and workers must be automatically enrolled in suitable pension schemes beginning October 1 in order to promote saving for retirement. Suitable pension schemes include defined contribution or defined benefit schemes. There is no obligation to enroll an individual who is already an active member of a qualifying employer scheme. Importantly, employers must make financial contributions to such schemes in respect of each enrolled individual (as must the individual).
The basic rules are:
- the employer must enroll jobholders (employees and workers) who work or ordinarily work in the UK under a contract, who are aged between 22 and the state pension age and who earn at least £8,105 per annum (in the tax year ending April 5, 2013);
- “staging dates” have been set for compliance, depending on the size of the employer; for example, those with more than 120,000 jobholders must comply beginning October 1, 2012; those with less than 500, from January 1, 2014; less than 250, from April 1, 2014; less than 90, from July 1, 2014; and most employers with fewer than 50 jobholders will not have to implement the new rules until August 1, 2015;
- contributions to defined contribution schemes will be phased in over two transitional periods that span six years. Ultimately, beginning in October 2018, employers will be required to contribute 3% of band earnings each year, whilst the jobholder will contribute 5%;
- the National Employment Savings Trust has been established by the Government to enable employers with no qualifying schemes to meet their statutory auto-enrolment duties;
- jobholders who are automatically enrolled into the scheme have a statutory right to opt out. However, they will be automatically re-enrolled every three years (so having to re-consider their pension choices periodically);
- those earning less than the qualifying earning band will still be entitled to join, but they have no right to employer contributions;
- employers are required to tell jobholders about the scheme; and
- the UK Pensions Regulator is responsible for enforcing the new mandatory enrollment requirements. Failure to comply could result in escalating fines and criminal sanctions.