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4 October 2012

Auto-enrolment pensions now in force

The long-heralded automatic enrolment of workers into pensions has finally commenced for the largest employers, with effect from 1 October 2012.

The requirement to automatically enrol all eligible workers into a qualifying pension scheme will eventually apply to all employers, but is being gradually phased in with the largest employers (120,000 or more employees on the payroll as at 1 April 2012) required to comply with the new duty from 1 October 2012.

Employers will be required to make minimum employer contributions into a scheme, or provide a minimum level of benefits.  A qualifying scheme can either be an existing pension scheme (provided it meets the necessary qualifying conditions), a new scheme set up for this purpose by the employer, or a scheme set up by the Government known as NEST (National Employment Savings Trust).

Eligible jobholders must be automatically enrolled into a pension scheme; non-eligible jobholders may also ‘opt-in’ if they choose to do so.  Employers must also provide information to workers about their new rights, generally within one month of the worker’s automatic enrolment rights arising.

Workers will have a statutory right to opt-out of the scheme within one month of becoming active members of the scheme, and will be entitled to a refund of any contributions.  Workers cannot opt out of the scheme in advance of being automatically enrolled.  Eligible jobholders who opt out of a scheme must be automatically re-enrolled every three years, and will have to opt-out again if they don’t want to stay in the scheme.

Automatic enrolment will apply to all employers over the next five years or so.  The next staging date (for employers with between 50,000 and 120,000 employers) is 1 November 2012. Employers should check the applicable staging date for their organisation on the Pensions Regulator website.

The penalties for not complying with this new duty are severe, and employers should ensure that they take the necessary steps to comply as a priority.