Auto-enrolment - employer duties
A new policy paper prepared jointly by legal firm Eversheds Sutherland and pension provider Royal London warned that there is a risk that employers aren’t doing enough and that the legal minimum may well prove to be too low.
It was suggested in three areas, that employers satisfying only the minimum obligation are vulnerable to serious future potential consequences.
- Governance – the importance of scheme governance; having a regular scheme monitoring and review process in place is a key care duty for every employer;
- The correct application of tax relief – which type of tax efficiency is the most beneficial to the employer’s workforce?
- Providing information to employees – absolutely key when an individual is able to access their pension funds; employers should help employees to make appropriate decisions about their options.
This paper suggested that successful litigation looks likely in finding against employers who have done just the minimum. The courts potentially deeming the employer to have failed in their duty to ensure that their pension arrangement delivers good employee outcomes. How many employers would fail the ‘duty of care’ test?
Employers in North America have paid damages to the tune of $350 million to disadvantaged employees for their failures in monitoring and reviewing their pension arrangement.
Commenting, Sir Steve Webb, former pensions minister:
‘It is very tempting for employers thinking that once they have chosen a pension scheme and enrolled the right workers they can largely forget about automatic enrolment. This paper is a wake-up call, especially for larger employers, which suggests that this might be a high-risk strategy. Many larger employers do already take pensions seriously and go well beyond their statutory minimum duties. But all employers should be reviewing their automatic enrolment arrangements on a regular basis to ensure that it remains fit for purpose’.
As a reminder, in line with Government policy, minimum contributions for both employer and employee increased from April 2018 and will again in April 2019. The tables below show the changes of all three earnings definitions which may be used to calculate the contributions.
Total pay definition
| Effective date |
Employer contribution |
Employee contribution |
Total contribution |
|
|
|
|
| April 2018 |
2% |
3% |
5% |
|
|
|
|
| April 2019 |
3% |
4% |
7% |
Basic pay definition
| Effective date |
Employer contribution |
Employee contribution |
Total contribution |
|
|
|
|
| April 2018 |
3% |
3% |
6% |
|
|
|
|
| April 2019 |
4% |
5% |
9% |
Banded qualifying earnings definition
| Effective date |
Employer contribution |
Employee contribution |
Total contribution |
|
|
|
|
| April 2018 |
2% |
3% |
5% |
|
|
|
|
| April 2019 |
3% |
5% |
8% |