Monthly Archives: June 2012

Pension Auto Enrolment – Employers Are Your Ready?

In accordance with the Pensions Act 2008 from October 2012 UK companies must have a pension in place into which employees will be automatically enrolled.  This could be an existing pension eg group personal pension or stakeholder pension so long as it meets the qualifying criteria.  However if a company does not have a pension scheme in place or do not introduce one then they can adopt the government’s scheme, National Employment Savings Trust (NEST).   There is no obligation to offer the NEST scheme to employees. Although its structure may suit some companies, it may not be suitable to others. However, it could be possible to offer a company pension scheme to some employees and NEST to others.  NEST is designed to simple and easy to use. The government has decided to introduce this to make it easier for people to save for their retirement as many are not currently doing so and to alleviate the ticking time bomb of the pension burden as the population grows older.

Auto-enrolment for pensions will impact on all employers between 2012 and 2016 depending on the size of the company and the number of employees, which will be established from PAYE records.   A company pension scheme must be compliant with government rules and companies must pay in contributions from both the company and their employees.  UK employers will be required to contribute a minimum percentage of each employee’s eligible earnings into a pension.   Employees will also need to pay a personal contribution into a pension.  The total minimum percentage contribution required of both employer and employee is being phased in.  In 2012 the minimum percentage is 2% rising to 8% by 2018.  Contributions can exceed this amount however. 

Employers have to automatically enrol workers who:

Are not already in a qualifying workplace pension scheme;

Are at least 22 years old;

Are below state pension age;

Earn more than £8,105 a year; and

Work or ordinarily work in the UK (under their contract)

These are eligible workers.  There are also non-eligible workers who fall outside the age range of 22-74 earning above £5,564 and below £8,105, they have the right to opt in and entitled workers who earn below £5,564 per year who have the right to join the pension scheme.   It is important to identify what category the employees fall into.  Employees are able to opt out of the scheme within one month of membership.  Any contributions they have made in that time must be refunded.  Employees must be identified for auto enrolment once every three  years.   

It is important to prepare early in good time for the appropriate staging date. Companies need to nominate a key contact in the company who will be responsible for pension auto enrolment.  Once the assessment stage has been completed it is important to communicate the changes to the workforce with the correct template documentation.  Once implemented pension records need to be keep for at least six years.

It is against the law to coerce employees into opting out of pension auto enrolment.  For companies who fail to comply with the statutory legislation the Pension Regulator has the power to impose huge fines.   


Voluntary Settlement Agreements & Protected Conversations

It seems that the “fire at will” dismissals proposal put forward by the government earlier this year following Adrian Beecroft’s report has met its demise.  From early analysis of the consultation exercise it seems that there was a lack of enthusiasm from small businesses to implement the no fault dismissal procedure with only 4 in 10 businesses being in favour.

This radical proposal was suggested as way to increase recruitment in the UK but it seems that firms are not convinced.

Instead the government are proposing voluntary settlement agreements (re-branded compromise agreements) following a protected conversation.  This would allow companies to force underperforming staff to leave with a pay off in return for not bringing an employment tribunal claim.  This would be mutually agreed between employer and employee.  The government is currently consulting on whether to set pay off levels; a pay off could be capped at a year’s salary making a termination payment quite attractive.  They are also consulting on model paperwork to support the new proposed settlement agreement.

Employees can decline to accept and then an employer should follow a fair dismissal procedure.  An employee would have to weigh up whether they would be better off taking a case to an employment tribunal whilst declining an offer.  Successful unfair dismissal claims could currently each £72,300.  However, it is rarely the case that the maximum pay out is reached, with the average being only just over £9,500.

Whilst many business leaders are in favour of this change to the original proposal as it allows businesses to have more flexibility, others consider that this is undermining employment rights by allowing an employer to get rid of staff whose face does not fit.

Nevertheless the proposal was put forward as part of the Enterprise and Regulatory Reform Bill.