Tim, the Finance Director of Company ABC, contacted OCM Wealth Management Ltd as he had read about “Nest” but was unsure of the Company’s duties under new rules introduced by the Government requiring them to automatically enrol their staff into a pension scheme.
Company ABC is a local firm with four director/shareholders, and 40 full and part time employees. Many years ago the director/shareholders had established a Small Self Administered Pension Scheme (SSAS) into which the Company paid regular contributions. In 2001 they had established a Stakeholder Pension for their workforce, but membership was patchy with most employees choosing not to join.
The first step was to establish the Company’s staging date, which OCM did by using the PAYE reference number. This is the latest date for employer’s to adhere to the new rules; large employers (250 plus employees) have to start automatically enrolling their workers from October 2012 to February 2014, and smaller employers (49 or less employees) have to start automatically enrolling their workers from June 2015 to April 2017.
The second step was to assess the Company’s workforce, to determine if they were classified as a worker under the new rules. This is broadly based upon their age and how much they earn. There are three different categories of workers; Eligible jobholders – who must be automatically enrolled, Non-eligible jobholders – who have the right to opt in, or Entitled workers – who have the right to join a pension scheme.
OCM guided Tim on the Company’s duties for each category of worker, which were broadly; automatically enrol them into a pension scheme, make contributions on their behalf, process opt out notices and refund contributions paid, on a 3 yearly basis re-enrol any who have subsequently opted out and finally maintain records (which could be subject to inspection by The Pension Regulator).
OCM explained that contributions are based upon qualifying earnings, which includes salary, wages, overtime, bonus, commission, SSP, SMP, SPP or SAP. For 2013/2014 these are earnings of more than £5,668 and £41,450 or less. From 2018 onwards the minimum contribution must be at least 8% pa, of which the employer must contribute at least 3%. From 2012 onwards contributions can be commenced at a lower starting level, to allow the employer to spread the cost.
After completing a detailed review OCM concluded that the director’s existing pension provision already met the new requirements. The existing Stakeholder plan did meet the necessary requirements, but the Company decided to commence contributions immediately for their eligible workforce, initially at the lower rate.