Any pension scheme used as part of auto enrolment must meet three key criteria:
- It must be registered with HMRC (as the government will provide tax relief on contributions).
- It must be available to all eligible employees without them having to take action
- It must meet minimum standards. For defined benefits schemes there is a Test Scheme Standard and for defined contribution schemes there are minimum levels of contribution.
The first key point is whether or not employers already have an existing pension scheme. If they do the next question is whether or not the scheme is compliant with the above criteria. If it is then employers may choose to continue to use it not only for those employees who are already enrolled but for all eligible staff. If it is not then either the scheme has to be brought into compliance or a new scheme will need to be found. Employers may choose to use different schemes for different kinds of staff to suit their business plans.
Which auto enrolment pension scheme?
Even if staff are already enrolled in a qualifying scheme as part of the contractual relationship between the employer and the employee, the employer still has a legal obligation to communicate with their employees. They should provide general information about workplace saving and any effects of the auto enrolment scheme. For example not only does auto enrolment mean that companies must offer a qualifying pension scheme to all employees, including those who were not included before, it also means that employees who previously opted out of (or left) a company pension scheme must be auto enrolled by the staging date. They’re at liberty to opt out again should they wish to, but only after being enrolled to begin with. They will also need to be automatically re-enrolled every three years at which point they can choose to opt out again if they so wish.
What if I don’t have a pension scheme in place?
For employers who either do not have a pension scheme at all or who do not have a suitable scheme, there are essentially two options. One is to set up their own pension scheme in house and the other is to join a collective scheme. The government runs a scheme called NEST (National Employment Savings Trust), which, by definition is compliant with legislation and was set up specifically to provide employers with a simple way to set up auto enrolment. There are also a number of similar schemes set up by providers in the private sector, which extend the range of options available. As a final option, employers may choose to contract a direct contributions scheme.