Pensions reform - let's bust a few myths - Jan '12

This year marks not only the London Olympics but also the start of auto-enrolment duties for some employers. But there's a few myths floating around about some of the rules and regulations so now's a good time to clear up some of the most common misunderstandings.

Myth 1 - Employers must use NEST for auto-enrolment

Not true. NEST (National Employment Savings Trust) is simply the public scheme which has been set up by the Government - it must accept all employers that apply to it, including the smaller schemes and smaller contributions which might be turned down by other providers.

The majority of company pension scheme providers, such as Scottish Widows, Standard Life, Aviva, Legal & General and Aegon, will provide a new type of simple scheme that meets the auto-enrolment criteria set out by the Pensions Regulator. These will be "no-frills", low-cost schemes with less flexibility than most GPPs and there will be no provision for advice to members. That said, as the rules apply to all employers of 1 or more workers, there will be some very small schemes that it will not be profitable for the private sector to operate.

These no frills schemes can run alongside existing or new GPPs which offer a wider range of services to members while remaining fully compliant with the new rules.

Myth 2 - You can only have one pension scheme

Not true. Employers are permitted to use any number of schemes to fulfil their duties. If you currently operate several pension schemes, providing they meet, or can be amended to meet, the specified requirements you may continue to do so.

Myth 3 - Existing pension schemes must be replaced

Not true. Employers with existing pension schemes will need to establish whether their schemes meet, or can be amended to meet, the qualifying scheme criteria. In short, in order to be qualifying, a scheme must:

• be an occupational or personal pension scheme
• be tax registered, and
• satisfy the minimum requirements for that type of scheme

In addition, employers must also ensure their existing provision meets or can be amended to meet the automatic enrolment scheme criteria. This means it must not contain any provisions that: 

• prevent the employer from making the required arrangements to automatically enrol, opt in or re-enrol a jobholder
• require the jobholder to express a choice in relation to any matter, or to provide any information, in order to remain an active member of the pension scheme.

If existing schemes do meet the requirements or can be amended to do so, the employer may use them to fulfil their automatic enrolment duties. Otherwise the employer will need to establish a new scheme which meets all the criteria, or use NEST

Myth 4 - Everybody has to be auto-enrolled

Not true. The extent to which employer duties apply depends on what category of worker an employee falls into. This is determined by their age and earnings[1]:

Entitled workers - have the right to join, in which case employers must arrange pension scheme membership but are not required to make contributions.

Non-eligible jobholders - have the right to join, in which case the employer must arrange pension scheme membership and make contributions.

Eligible jobholders - must be automatically enrolled by the employer who must also make contributions.

Employer duties extend beyond simply automatically enrolling and making contributions into an appropriate pension scheme. The rules also include providing information at specific times and keeping full and accurate records.  If you would like more detailed information on employer duties please contact Aspira on 0800 048 0150.

And finally...

While there have been recent changes to the implementation plans for workplace pensions reform, there is one key date we can be sure about. Your payroll data for April 2012 will be used to determine the number of people you employ and therefore your staging date.