Lucy Herbert, pensions manager at resident law firm, DWF, advises retailers on the legal ramifications of new pension auto-enrolment regulations launching in October 2012
In October 2012 the UK will see the roll out of pension auto-enrolment across the country. This new government measure will see every eligible worker automatically enrolled into their employer’s qualifying pension scheme without the need for them to make an active decision to join.
While the new system will spell benefits for workers, employers need to be mindful of the legal and administrative ramifications. They may find themselves having to re-draft their current pension schemes and employee contracts to ensure they meet the new regulations, as well as having to make changes to their financial planning and general record-keeping.
For the retail sector in particular, the reliance on shift workers and agency staff will require additional measures to be taken to guarantee compliance with auto-enrolment regulations.
For the purposes of auto-enrolment, the categorisation of employees and their related auto-enrolment requirements is based upon earning thresholds. These are currently set at a minimum earning level of £5,035pa and £7,745 per annum. In order to ensure all employees receive their pension entitlement, earnings need be assessed over a pay reference period which takes into account the regularity of payment to the employee, whether that is weekly, monthly or somewhere in between – and the threshold figures adjusted accordingly.
As a result HR systems will need to be updated to not only assess the earnings for the employee during each pay reference period against the relevant threshold but also, where necessary, auto-enrol for particular periods.
As a general rule for those employing agency workers, the organisation that is directly responsible for paying the worker’s wages will be responsible for ensuring they are auto-enrolled into the relevant pension scheme. However, the employer should review their agency contracts to ensure the responsibility and related cost is agreed and covered.
Managing the impact for employees
Although employers will be expected to pay a minimum of 3% into the pension pot for employees who meet the necessary requirements, workers will find up to 4% of their wages will be automatically contributed to their pensions. It is important employers are providing enough information to employees as early as possible to assist with their financial planning and understanding of the new legal requirements.