The 2012 Pension Reforms: a brief guide for Employers

Summary
The 2012 Pensions reforms are set out in the Pensions Act 2008 and are currently due to be phased in from 1st October 2012 (subject to any amendment by the new government).

For the first time this will place a legal duty on employers to automatically enrol all employees aged between 22 and 75 years, earning between £7,500 and £33,540 (based on current pay levels) into a pension scheme and also to make an employer’s contribution towards this scheme.

Employees do have the option to opt out of the scheme if they choose to, and employers do not have to make a contribution to a pension scheme if the employee has opted out.  Employers will also be allowed 12 weeks’ grace before employees need to be automatically enrolled, to account for any temporary staff employed on a short term basis.

When does it come into effect?
The changes will be phased in for all employers on a month-by-month basis, over a four year period (October 2012 - September 2016) depending on the number of employees you have.  This month-by-month sliding scale, starts on 1st October 2012, for those with 120,000 or more employees, reducing down (month-by-month) to those with between 50-89 employees from 1st July 2014.

Organisations with less than 50 employees will see these new changes phased in between August 2014 - February 2016, again on a month-by-month basis, but this time based on their employer’s PAYE Reference Number. Have a look at Employer Pension Contribution Start Dates for a detailed breakdown.

Finally new employers, with PAYE income first payable between 1st April 2012 and 31st March 2016 will see the changes phased in between March-September 2016.

Employers ‘should’ receive written notice 12 months from the pensions regulator prior to the date these changes will come into effect for their organisation (based on the number of staff they employ). 

How much will it cost?
The minimum amount that must be paid into the pension scheme, and by whom, is also being introduced on a sliding scale, over a five year period, based as a percentage of the employees gross annual wage. 

The scale sets out a minimum total contribution that must be paid into the pension scheme, and a minimum employer’s contribution towards this.  The difference reflects the minimum contribution the employee must make into the scheme.  Employees will receive tax relief on the amount of their contribution.