Pension schemes have often been a point of contention for businesses and their employees. Often responsibilities and liabilities are poorly understood on both sides. However, legislative changes in 2012 to both direct contribution and defined benefit pensions schemes may raise new challenges around this age old issue. TM investigates.
In 2012 a number of changes to the way in which pension schemes are structured and administered by employers will come into force. According to commentators, including The Pensions Network, a membership based organisation comprising senior professionals in pension provision and employee benefits, there is little understanding of the forthcoming, and in some cases, businesses have already implemented changes to employer responsibilities for pensions.
At a recent meeting of The Pensions Network, a presentation from Emma Watkins, director of business development for MetLife Assurance, revealed that 56% of employers were unaware of any of the below changes to employment law or pension provision:
- The abolition of the Statutory Retirement Age
- The start of auto-enrolment
- The move from RPI to CPI indexation
- Changes to IAS reporting requirements
Such a lack of awareness may prove costly for many businesses. The same research, conducted by MetLife in September 2011, showed that 38% of employers have not yet carried out any review of the costs likely to stem from auto-enrolment of employees.
An explanation of auto-enrolment from Anthony Arter, senior partner at law firm, Eversheds
From 1 October 2012, new laws are due to come into force which will require employers in Great Britain to automatically enrol its eligible workers in a pension scheme. Employers can use their own pension scheme provided it meets certain minimum standards, or enrol their workers in the Government’s National Employment Savings Trust (NEST) pension scheme. There are also a number of other providers providing alternative arrangements to NEST.
The new duties mean that employers will need to automatically enrol and pay minimum contributions for any workers aged between 22 and the state pension age who earn at least £7,475 per year (to be reviewed annually). This will go into an employer’s pension scheme, NEST, or one of the alternatives. Workers will have a right to opt out of whichever scheme they have joined. However, employers will be required to re-enrol those who opt out approximately every 3 years. They have a six month window in which to do this.
Employers will also need to comply with a range of new registration, information and record keeping duties. The Pensions Regulator will notify each employer in advance of the date from which the new duties will first apply to them, based on the size of the employer’s payroll. The largest employers, those with 3,000 or more workers, will need to comply with the new duties from October 2012, and smaller employers may have start dates – or “staging dates”, as these are called – as late as 2017.
The new duties mean that employers will need to have appropriate administrative systems in
place to, for example, monitor the level of earnings of their workers, and to keep track of those workers who need to be automatically re-enrolled in accordance with the legislation. They will also have to bear in mind the potential additional cost of pension contributions; contributions will be phased in so that from October 2017 employers will need to contribute a minimum of 3% of “qualifying earnings” on behalf of workers.
Pensions and union action
There have been a number of clashes between unions and employers over pensions and proposed changes to existing schemes at major manufacturing organisations in recent months.
More than 2,500 workers from Unilever’s sites at Purfleet, Port Sunlight, Warrington, Leeds, Crumlin, Gloucester, Manchester, Burton-on-Trent and Chester joined picket lines on December 9 2011 as part of a widespread day of action to protect their pensions.
Other companies experiencing pensions disputes include BMW and Ford. Union leaders from the manufacturing sector’s largest union, Unite, have criticised these wealthy companies for what they see as “wanton greed” in attacking employee pensions schemes but these companies have defended their need to curtail the escalating cost of pensions. Alterations to pension schemes remain an emotive issue for employees and potentially volatile for employers.