Reminder for employers: Are you contributing to your employees’ pension?
Employers have a statutory duty to make contributions to certain employees' pension funds. Failure to do so can lead to a substantial pension bill later on as well as a heavy fine and court costs.
The Pensions Act
The Pensions Act 2008 (the Act) introduced a requirement that all UK employers must contribute to a workplace pension scheme for certain employees. This is done by way of "auto-enrolment".
This obligation is being introduced into UK law gradually to give employers time to get used to it. The deadline is now approaching for the remaining 150,000 employers, including new businesses set up since the Government scheme was launched, to enrol their staff by June 2018.
Employers should note that they are an employer for the purpose of the scheme if they employ more than one person.
What is auto-enrolment?
The auto-enrolment scheme ensures that workers aged 22 or older and who earn £10,000 or more, are enrolled in a workplace pension by their employer, unless they opt out.
The government plans to extend the scheme to apply to all workers aged 18 or over by the mid-2020s. You can read more about these plans here: The Next Steps in Auto-Enrolment.
Key features of the scheme include the following:
- Auto-enrolment is a system that automatically diverts a percentage of an employee's pay into pension savings. At the same time, the employer and the government contribute to these savings.
- These savings are invested until retirement.
- Employees can opt out – but in doing so, they lose the employer's contribution.
Minimum contributions are set by law as follows:
|When applicable||Employee contribution||Employer contribution||Government contribution (as tax relief)|
|From April 2018||2.4%||2%||0.6%|
|From April 2019||4%||3%||1%|
There are plenty of resources available on the Government website to guide employers on how to meet their legal obligations under the Act. (An example is given at the end of this article.)
What happens if you don't comply? A recent example of a prosecution
Some employers may not have understood their legal duties or may have been putting off the arrangements to make the contributions in breach of their obligations under the Act.
Unfortunately, time is running out for these employers as the Pensions Regulator is beginning to take enforcement action. Earlier this month, a company was prosecuted by the Pensions Regulator for not making the contributions - and fined a substantial sum. The company was also ordered to pay the outstanding payments to its employees as well as a surcharge.
What should you do?
If you are one of the employers that have not yet set up contributions, you are at risk of prosecution. You may receive a warning letter from the Pensions Regulator with a deadline for you to meet your obligations. You are at risk of being investigated by the Regulator and enforcement proceedings may follow.
You should take action to rectify the position immediately by:
- creating a pensions scheme for your staff;
- arranging to back-pay the required contributions for your staff;
- asking your staff if they want to backdate their contributions (this is their choice).
For further information on what your pension obligations are and what you can do to meet those obligations as an employer, contact one of our Financial Advisers.
For guidance, if you think you are in breach of your obligations under the Pension Act 2008 or need assistance defending a prosecution contact us on 0161 785 3500 or make an enquiry.
- Auto-enrolment – what happens if I don't comply?
- An Auto-Enrolment lesson to be learned from employers
- SMEs and the latest stage in auto-enrolment
- Early working life? It pays to get into pension saving now!
- The Pensions Regulator's website
Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.
This blog was posted some time ago and its contents may now be out of date. For the latest legal position relating to these issues, get in touch with the author - or make an enquiry now.