Pension reform FAQs for employers

Your new pension duties are quite far-reaching, but you will definitely need to:

• Include your eligible UK employees in a qualifying workplace pension scheme (QWPS)
• Make payments to the scheme (or schemes) for your employees

These changes affect every employer – big and small.

Before your staging date, you’ll need to have systems and procedures in place to comply with your new duties. In particular, you will have to include your eligible employees in a qualifying workplace pension scheme (QWPS), and make payments for them.

You may want to start planning ahead as soon as you can for any extra costs.  Also, if you already have a pension scheme, you may want to review it as soon as you can.

Standard Life can help you meet your duties in a way that reduces your administrative burden, minimises the changes you must make and provides a better enrolment experience for your employees.

View Pension reform - a checklist for employers (PDF, 1.1MB) to find out the key tasks you must carry out to fulfil your new duties and where Standard Life can help.

The new employer duties are being introduced in stages. They started in October 2012 with the very largest employers, gradually rolling out to cover all employers by 2018. The Pensions Regulator will write to you a year before your scheduled start date, known as your staging date. If you don’t know your staging date, our pension reform pathfinder tool can help.

You can bring forward your staging date by giving The Pensions Regulator at least a month’s notice or use a waiting period to delay it by up to three months. This provides some flexibility to choose a date that better suits the needs of your business. For more information please see 'How can I make the rules work for my business?'

You can use your existing pension scheme as a QWPS as long as it meets the quality standards. But it might not be suitable for new members if it doesn’t allow joining by auto-enrolment and include a suitable default fund. If you have a number of pension schemes, or closed legacy schemes, you might want to take this opportunity to rationalise them even if they meet the standard. See the section 'What is a qualifying workplace pension scheme (QWPS)?'

Standard Life has developed auto-enrolment solutions across the majority of our corporate pensions.

Note to existing Standard Life clients

We’ll be in contact with you or your corporate consultant well in advance of your staging date to discuss how Standard Life can support you with your new duties.  If you need further information in the meantime, please speak to your corporate consultant. If you don’t have one, please speak to your Standard Life contact or contact us.

It’s the scheduled date for the start of your new pension duties. There are a number of key staging dates between 2012 and 2018, and your date depends on the size of your company. Staging began in October 2012 for the largest companies and will be rolled out over the following years for all other companies. If you don’t know your staging date, see our pension reform pathfinder tool.

You can bring forward your staging date by giving The Pensions Regulator at least one month’s notice or use a waiting period to delay it by up to three months. This provides some flexibility to choose a date that better suits the needs of your business. For more information please see 'How can I make the rules work for my business?'

You’ll need to automatically enrol employees who:

• Are not already in a qualifying workplace pension scheme (QWPS)
• Are at least 22 years old
• Have not yet reached state pension age
• Earn more than the earnings trigger in the relevant pay reference period
• Work or ordinarily work in the UK

You must provide information to, and let some other employees join your scheme. But you only have to make payments for them if they have qualifying earnings.

For more information please see 'Who is eligible?'

If an employee doesn't want to be a member of your QWPS they can decide to opt out, but you must automatically enrol them first.

A QWPS is a pension scheme that meets the Government’s quality standards – in particular, the minimum payment levels. And if it’s going to accept new members, it must:

• Allow joining by automatic enrolment
• Have an appropriate default fund

The minimum payments that you have to make to a QWPS depend on the pensionable pay definition you use. They’re being phased in, so the full rates won’t apply until October 2018. The minimum payments are:

Option 1 – At least basic pay is pensionable

Option 2 – Qualifying earnings (or at least 85% of total pay) is pensionable

Option 3 – Total pay is pensionable

You can choose different options for different employee groups. You can make more than the minimum payments and don't need to use phasing.

No, you can choose a definition of pensionable pay that fits your business, such as basic pay or total pay. And you can use different pay definitions for different groups of employees, for example one for managers and another for hourly paid workers.

However, you need to make sure that the payments meet the quality standard. There are four different minimum quality standards, based on different pensionable pay definitions, giving you flexibility to choose a qualifying basis you can easily check against.  Please see 'What are qualifying earnings?' for more information.

If you don’t want to base pension payments on qualifying earnings, you can certify that you’re meeting the minimum quality standard based on three other pensionable pay options: basic pay, total pay or 85% of total pay.

If you’re comfortable that your scheme meets one of the alternative quality standards, you can issue an initial certificate covering any period up to 18 months. This must be done within one month of your staging date (or the end of your waiting period if you use one).

When your initial certificate expires, you need to check that your scheme met the quality standard for the period covered by the certificate. If it did, you can issue a new certificate covering up to a further 18 months. If it didn’t, you’ll need to make changes so that your scheme meets the standard going forward. There isn’t normally any need to take retrospective corrective action, unless The Pensions Regulator decides that you didn’t have reasonable grounds for signing your initial certificate in the first place. The new certificate must be signed within a month of the old one running out.

Your UK employees aged between 16 and 75 are eligible for your pension scheme. But different employee groups have different pension rights, so it’s important that you assess your employees to work out which group they fall into. Our eligibility assessment tool can help you with this.

Eligible jobholders − you need to automatically enrol these employees into a qualifying workplace pension scheme (QWPS) if they aren’t already in one.

Non-eligible jobholders − aren’t eligible for auto-enrolment. But they can join your QWPS if they want to. And, if they do, you’ll have to pay into it for them.

Entitled workers − are ‘entitled’ to join your pension scheme. But it doesn’t have to be your QWPS and you don’t have to pay into it for them.

SPA means the employee’s state pension age. Please see 'What are qualifying earnings?' for more information.

You can choose to go beyond these minimum requirements and offer the same pension to all your employees regardless of age and earnings. This also has the benefit of reducing your administrative effort in assessing those not in the QWPS every pay reference period.

What are qualifying earnings?
Qualifying earnings are an employee’s gross earnings in the qualifying earnings band for any pay reference period. For tax year 2013/14, the qualifying earnings band is:

Gross earnings from an employment include:

• Salary or wages
• Overtime, bonuses or commission
• Statutory pay for sickness, maternity, paternity or adoption leave

Where someone has more than one employment, their qualifying earnings are calculated separately for each one. Your duties are based solely on what you pay your employees and you don’t have to take account of earnings from other employments.

This is the income level that triggers an employee’s auto-enrolment rights. For tax year 2013/14, the earnings trigger is:

When an employee is automatically enrolled (or re-enrolled) into, or chooses to join, your qualifying workplace pension scheme (QWPS) they have one month to opt out. This is known as the opt out period.

You must tell your employees about this right to opt out and how they can do it, however you can’t encourage anyone to opt out.

If an employee gives you a valid opt out notice during this period, you must refund them any pension payments taken from their pay. They can still leave the scheme after this window has closed, but they will not get their money back.

You can use a waiting period to help find an opt out period that fits in with your payroll processes. Use our pension reform pathfinder to help you decide which dates work best for your business.

Employees who earn less than the earnings trigger, or are aged between 16 and 21 or state pension age and up to 74, don’t have to be automatically enrolled in a qualifying workplace pension scheme (QWPS). However, if they have qualifying earnings in a pay reference period, they can opt into your QWPS voluntarily. And, if they do, you’ll have to pay into it for them.

You must tell these employees (known as non-eligible jobholders) about this right and how to opt in if they want to.

Eligible job-holders who aren’t in your QWPS, perhaps because they opted out, can also opt in. But you don’t have to let them back in within a year of opting out.

Your pay reference period is the period used to assess your employees’ pension eligibility. It depends on how often you pay your employees and reflects their normal pay pattern and the period they are paid for. For example:

• For weekly paid employees the pay reference period is one week. And if they’re paid on a Friday for that week’s work, it runs weekly from Saturday to Friday
• For employees paid monthly the pay reference period is one month. If they’re paid on the 15th for the work done in the previous calendar month, the pay reference period is that calendar month. But if the payment on the 15th had covered work done up to the 14th, each pay reference period would run from the 15th of one month to the 14th of the next

The same principles apply for other pay frequencies.

You must automatically enrol eligible employees into a qualifying workplace pension scheme (QWPS) if they aren’t already in one. But there is flexibility in the rules that means you can use other joining methods.

For example, you can apply a waiting period to delay your auto-enrolment duty by up to three months. This gives you more time to join employees to your scheme using your usual method, such as contract of employment, application or flexible benefits election. It also means you can use the same approach for all your employees, not just eligible employees.

Using these other joining methods could make it easier to use salary exchange to meet some of the mandatory pension cost, reducing the financial burden for you and your employees. For more information, speak to your corporate adviser.

Rather than meeting your pension duties immediately on your staging date or when an employee first becomes eligible, you can choose to apply a waiting period of up to three months.

Different waiting periods can be applied to different categories of employees or even different individuals. You could apply different waiting periods to managers and other employees, or use them so that employees only join your pension on one day a month.

This gives you flexibility and helps you fit your new duties around your way of working.

Using a waiting period of up to three months before enrolling employees to your pension scheme can help make your pension process fit your way of working. For example, waiting periods can be used to:

• Stagger the enrolment of a large workforce
• Align pension joining dates, and/or the opt out period, with your payroll process
• Operate your usual pension joining process
• Avoid joining temporary or lower paid employees

Our pension reform pathfinder can show you the benefits of using a waiting period and help choose one that fits in with your payroll process.

If you want to apply a waiting period of up to three months before an employee joins your pension scheme, you must tell them by giving them notice within one month of their original eligibility date. The notice must also tell them that they can join sooner if they want to and are eligible.

More information on notices can be found on The Pensions Regulator’s website.

The deferral date is the last day of the waiting period. It is the date when you must assess the employee(s) that you’ve applied a waiting period to, and automatically enrol them if they’re eligible.

Using a waiting period can help join up your pension joining process with your payroll process. This can streamline administration and help reduce costs.

• Keep it simple: Your staging date will be the first date of a month and going forward employees can become eligible for pension at any time. You can use a waiting period to make sure you only join employees to your pension scheme once a month on a date that fits in with your payroll cycle. This can make the task more manageable and avoid issues like making part-month pension payments
• Avoid earnings estimates: Aligning joining dates with payroll dates also avoids having to estimate earnings for the pay reference period or assess new employees on a part month’s earnings 
• Manage opt outs: You can also use a waiting period to help manage your opt out process
  
  For example, if you want to minimise the need to refund pension payments to employees who opt out, you could start your one month opt out period just after your payroll has closed. This gives employees almost a month to opt out before any pension payments need to be taken from their pay.
  
  Or, if you think your employees won’t opt out until they see pension payments coming off their take home pay, you could start your opt out period just before your payroll closes. You’ll have to deduct pension payments for everyone, but this will act as a prompt to opt out for those who don’t really want to be in your qualifying workplace pension scheme (QWPS). This gives employees the maximum time to opt out once they see the impact on their take home pay.

Although you can’t use a waiting period at your triennial re-enrolment date, you do have the flexibility to choose a date up to three months either side of your scheduled date. This gives similar flexibility to align your triennial re-enrolment date with your payroll cycle or flexible benefits window.

Our pension reform pathfinder can show you the benefits of using a waiting period and help choose one that fits in with your payroll process.

You can apply a waiting period of up to three months before joining employees to your pension scheme. This can help you avoid automatically enrolling temporary staff on short-term contracts, saving you unnecessary administration and cost.

A waiting period can also help if a low paid employee’s earnings ‘spike’ over the earnings trigger in a particular pay reference period, for example, as the result of an annual bonus or seasonal overtime. You can apply a waiting period to delay automatically enrolling them for up to three months. You only need to enrol them if their earnings are still over the earnings trigger at the end of this waiting period. So you can generally use the flexibility of applying a waiting period to avoid automatically enrolling employees whose normal earnings are below the trigger.

This can be done repeatedly, if the employee's earnings spike again in future. For example:

Jenny works part-time and normally earns £400 a month. However, over Christmas she works extra hours and earns £800 which she is paid in January.

The £800 she is paid in January is over the monthly earnings trigger, so Jenny appears to be eligible for auto-enrolment

Jenny’s employer decides to apply a waiting period before enrolling her.  This means that:

• Jenny must be assessed again at the end of the waiting period
• Unless her earnings in that pay reference period are over the monthly earnings trigger she can’t be automatically enrolled
• Jenny can opt in during the waiting period if she wants to
• A waiting period can be repeated if Jenny’s earnings ‘spike’ again in future

Note that Jenny’s employer still has to tell her that she’s eligible, but in a waiting period, with the right to opt in.

NEST is a occupational pension scheme set up by law to provide a basic pension plan which every employer can use to meet, or help meet, their obligations.

Visit the NEST website for more information.

Yes, an individual plan can be used as a qualifying workplace pension scheme (QWPS) as long as the payment levels meet or exceed the quality standards and these are being paid via the employer – by payroll deduction or salary exchange. This means existing individual plans can continue to be used to meet your duties. However, they won’t normally allow joining by auto-enrolment. You may have to use a waiting period to allow you to use another joining method (such as contract of employment or application) if you want to use an individual plan as your QWPS for a new employee.

Yes, and it could help meet some of the mandatory pension costs, reducing the financial burden for you and your employees. However, the employee needs to agree to salary exchange and it’s largely governed by employment law. In general, here’s what most employers will need to do:

• For new employees – employment contracts need to say that when employees join the qualifying pension scheme, payments will be made on a salary exchange basis. The new employee then decides whether or not to accept the contract.
• For existing employees – you need to exchange letters to amend existing contracts of employment. An employee who disagrees with the amendment will have to be auto-enrolled on a salary deduction basis.

Using other joining methods, such as contract of employment or flexible benefit elections, could make it easier to apply salary exchange for pension payments. And using a waiting period gives more flexibility to use alternative joining methods. Our pension reform cost calculator can help illustrate the savings from using salary exchange for pension payments.

No, if they are eligible, you need to automatically enrol them. If they want to keep their enhanced or fixed protection, they will need to opt out within the opt out period. But employees with primary protection can be auto-enrolled without affecting that protection.

Note that it is the employees’ responsibility to opt out to ensure they retain their protection – not the employer’s.

These are transitional protections against the tax charge for taking pension benefits in excess of the lifetime allowance. These protections are lost if further payments are made into the scheme. An employee’s financial adviser will be able to confirm if they have this protection in place.

• Enhanced protection - This protection allowed individuals who had built up pension rights before 6 April 2006 to avoid the lifetime allowance charge. They had to apply for this before 6 April 2009.
• Fixed protection – This protection allowed individuals to maintain a personal lifetime allowance of £1.8 million after the standard allowance reduced to £1.5 million on 6 April 2012. They had to apply for this before 6 April 2012.
• Primary protection – This protection allowed individuals who had built up pension benefits before 6 April 2006 to maintain a personal lifetime allowance based on how much their benefits exceeded the standard lifetime allowance. They had to apply for this before 6 April 2009.