National Employment Savings Trust – Final regulations presented to Parliament

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Summary
A series of statutory Order and Regulations have been published that describe most of the final structure of the NEST scheme that will be introduced in 2012.  In particular, they provide information about the operation of the new Corporation that will act as Trustee to the scheme, and the four-year implementation timetable so that every employer can now find out when the scheme will affect them.

Detail

On 12 January, eleven statutory Orders and sets of Regulations (some still in draft) were laid before Parliament to finalise important aspects of the new workplace pension schemes that are to be introduced in 2012.  Formerly known as “pension personal accounts”, the optional statutory pension scheme that employers will be able to use to fulfil their new duties is now known as “NEST”, the National Employment Savings Trust.

We published a detailed description of the scheme last October, following the publication of the final Regulations in draft.  (See www.paypershop.com/payrollblog/pension-personal-accounts001-7/)  A number of changes have been made to the rules and procedures described in that article, particularly in connection with the staging period timetable and auto-enrolment of jobholders into the scheme.  It is now possible for every employer to identify the date from which they will be required to comply with their duties under the new contributory pension arrangements.  The following notes explain the changes that are set out in the new Regulations and Orders.

Implementation

For any particular employer, automatic enrolment commences from the employer’s staging date.

• The staging period during which employers are first required to comply with their statutory duties runs from October 2012 for four years.  The staging dates are the first day of each successive month throughout the period, with the exception of April 2016, July 2016, and each December.
• In the case of money purchase and personal pension schemes, the first three years are the first transitional period during which employer contributions must be at least 1% of qualifying earnings.  The fourth year is the second transitional period during which employer contributions must be at least 2%.  Employer contributions at the full 3% rate are required from October 2016.
• In the case of defined benefits and hybrid schemes, the transitional period is the four-year period.
• The number of employees in a PAYE scheme is the latest number available to the Pensions Regulator on 1 April 2012.
• Between October 2012 and July 2014, an employer’s staging date is determined by the number of employees in the PAYE scheme, with the exception of a single intake in March 2014 which will involve a limited number of employers with PAYE schemes with fewer than 50 employees and that have specified numbers or letters as the last two characters of the PAYE reference number.
• The intakes between August 2014 and February 2016 will involve only employers with PAYE schemes with fewer than 50 employees, and their staging date is determined by the last two characters of their PAYE reference number.
• The intakes between October 2012 and February 2016 will exclude new employers that first pay employees on or after 1 April 2012.  The staging dates from those employees will run between March and September 2016.
• Where an employer first pays employees on or after 1 April 2016 and the employer does not already have a staging date, the staging date is the day on which PAYE payments are first paid.
• Where an employer has two or more PAYE schemes, the staging date is the staging date of the PAYE with the earliest staging date, and that same staging date applies to the other(s).
• An employer with a staging date specified in the Regulations may take up the automatic enrolment duty from a staging date that is earlier than the specified staging date if the employer has
• agreed with a qualifying pension scheme that automatic enrolment may start from the earlier staging date (which exceptionally includes 1 December 2012), and
• notified the Pensions Regulator in writing not less than one month before the earlier staging date.

The following detailed Table is based on that included in the Regulations.  Where the first day of any month is not a working date, the staging date is the next following working day, ignoring Saturdays, Sundays, bank holidays and other public holidays.

Postponement of automatic enrolment

An employer with a large number of short-term workers may wish to postpone automatic enrolment to avoid having to enrol them unnecessarily.  The last Regulations, still in draft form, allow postponement in this situation but only where,

• automatic enrolment occurs within three months of the postponement date, i.e. what would otherwise have been the enrolment date,
• in the case of money purchase and personal pension schemes, the ongoing employer contributions are at least 6% of qualifying earnings and total contributions from both employer and jobholder, including tax relief, are at least 11%,
• in the case of defined benefit schemes, contributions are made that maintain the same pension on retirement as would have applied if automatic enrolment had not been postponed, and
• automatic enrolment has not been previously postponed in employment with the same employment in the twelve months preceding the postponement date.

This revised provision allows automatic enrolment of short-term workers to be postponed but prevents employers from using serial short-term contracts to repeatedly postpone enrolment.

Trustee Corporation

The Trustee Corporation that is set up by the Pensions Act 2008 to manage the statutory scheme is the “National Employment Savings Trust Corporation” and it has a financial year that ends on 31 March each year.  The Corporation comes into existence on 5 July 2010.  From the same date, the Personal Accounts Delivery Authority (PADA) is dissolved and all of its property, rights and liabilities are transferred to the Corporation.  The transfer falls with the TUPE Regulations in respect of the transfer of PADA’s staff to the Corporation.

For the purposes of broader pensions legislation, the Corporation is the scheme Trustee and is required to meet the statutory obligations on pension scheme trustees, but with some modifications.

• The Corporation is not required to obtain an auditor’s statement about contributions made under an occupational pension scheme, due to the potential size of the scheme.
• The requirement for pension schemes to have member-nominated trustees does not apply as the NEST scheme has a members’ panel to represent the scheme members.
• The requirement for pension scheme trustees to consult with the sponsoring employer(s) before making changes to scheme rules is replaced with an obligation to consult the employers’ panel.
• The restriction on pension scheme investment in employer-related investments, i.e. products related to the sponsoring employer, to no more than 20% of the scheme’s current market value do not apply, due to the wide range of participating employers.  However, government bonds are not considered to be employer-related investments.
• The requirement for pension schemes to pay a fraud compensation levy does not apply as the NEST scheme is not employer-sponsored.

The legislation obliges the Trustee to accept any employer as a participant in the NEST scheme who chooses to use it to fulfil the duties imposed on employers and agrees to the scheme terms and conditions.  This mandatory acceptance does not apply, however, to employers who apply to take up their duties from a staging date earlier than that specified for their PAYE scheme in the legislation.  In that situation, the Trustee may decline to accept an employer into participation at that time.

Similarly, once an employer has been admitted as a scheme participant, the Trustee must admit any jobholders and workers put forward for scheme membership, but not necessarily those put forward for membership before the employer’s statutory staging date.  The Trustee must allocate a pension account to each member, accept contributions and, in specified circumstances, refund contributions.

The Trustee must also accept into scheme membership “self-employed” persons and “single person directors” between age 16 and 75 and working in the UK.  Persons are

• “self-employed” if they are in employment but not employed by someone else.
• “single person directors” if they are directors of a company, employed by that company under a contract of employment and there are no other employees in the company.

Members’ and employers’ panels

The Trustee is required to set up a “members’ panel” and an “employers’ panel” in order to consult about the operation, development or amendment of the NEST scheme.  They must be operational within 12 months of the first member contributions being made.  As voluntary membership of the scheme may start during 2011, the panels should be in place by the time automatic enrolment starts in October 2012.

The panels must have between nine and fifteen members and some of the members must be members or participating employers of the NEST scheme as the case may be.  The panel members may receive “reasonable payments”.

The members’ panel’s consultation role includes matters relating to the job descriptions and selection criteria for the members of the Corporation.  One member of the panel has to be involved with the shortlisting and interviewing of candidates.

Annual contribution limit

As specified initially in legislation, the annual contribution limit is £3,600 in a tax year, but this is based on the average earnings index for December 2005.  The limit must be adjusted in line with the average earnings index before the first contributions are paid into the scheme and thereafter from the start of each tax year.  If the limit had been adjusted annually since 2005 based on the December index for each year, it would currently stand at around £4,050 and may be around £4,300 when the scheme commences.

Contributions, in the context of the contribution limit, are any contributions made by a participating employer, on behalf or in respect of a scheme member, i.e.

• the minimum permitted contributions required by the quality requirement for a money purchase scheme (8% of
• qualifying earnings from October 2016, but lower in the transitional periods), andany contributions above 8% of qualifying earnings in the relevant pay reference period.

Other payments and refunds may occur but they are not taken into consideration.

Contributions that count towards the annual limit are treated as being paid to the scheme when they are received by the Trustee.

Contributions received by the Trustee that exceed the annual limit may not be applied to the member’s account and must be refunded unless

• the amount to be refunded is disproportionate to the costs of making the refund, or
• the contributions have already been applied to the member’s account.

Where a person is employed by more than one participating employer, the Trustee may accept contributions from the employers but, if the combined contributions exceed the annual limit, only the amount up to the limit may be applied to the member’s account and the excess must be refunded to the member or participating employer.

Employer registration

The following is a brief summary of the procedures that each employer must follow to register and re-register with the Pensions Regulator and that the Pensions Regulator must follow where contributions are not paid over.

Employers are required to provide information to the Regulator regarding their compliance with their statutory duties in four specific situations:

First registration

1. within two months following the employer’s staging date
2. after the end of the staging period, within three months of the first time that any worker first receives PAYE income

Re-registration

1. in relation to each PAYE scheme, within two months following the date of automatic re-registration
2. in relation to each PAYE scheme, within three months after the end of the period of three years since the previous provision of information.

The regulations list in detail the information that must be provided in each of these situations, including, as appropriate, information about

• the employer
• the person providing the information
• the occupational or personal pension scheme
• the employer pension scheme reference
• number of jobholders subject to automatic enrolment
• number of jobholders subject to postponement of automatic enrolment, or in defined benefits or hybrid scheme
• number of workers who are members of an automatic enrolment scheme
• number of workers in each PAYE scheme not included in the figures above.

It is presumed that forms will be made available for the use of employers in each of these registration or re-registration situations.
Compliance and penalties

Employers, trustees or managers of occupational pension schemes and providers of personal pension schemes are required to keep specific records which must be made available to the Pensions Regulator on request.  Records must be retained for six years, other than opt-out notices, which must be kept for four years.  These periods are not tax year or pension years, but relate to the date of each document.

The Pensions Regulator may issue, as appropriate,

• a compliance notice, for a contravention of one or more of the employer duties
• a third party compliance notice, for a contravention of one or more of the employer duties because of a failure by a third party
• an unpaid contributions notice, for non-payment of contributions by the due date
• a fixed penalty notice, for failure to comply with another notice
• an escalating penalty notice, for failure to comply with another notice.

Where the Regulator issues a compliance notice or an unpaid contributions notice to an employer, the employer must pay over any unpaid contributions within three months.  If they are not paid within that time, the employer also becomes liable to pay personally any unpaid employee contributions.  Interest is also payable on unpaid contributions at a rate that is 4.2% above the retail price index at the time.  The Regulator may estimate the amount of any unpaid contributions by multiplying together (1) the annual maximum contribution limit divided by 12, (2) 8%, (3) the estimated number of jobholders, and (4) the number of months involved.

Where the Regulator issues

• a fixed penalty notice for non-compliance with other notices, the penalty is £400
• an escalating penalty notice for employer non-compliance that resulted from the failure of a third person (e.g. the pension scheme), the penalty is £200 per day
• an escalating penalty notice for employer non-compliance is otherwise a penalty of between £50 and £10,000, depending on the number of persons in the employer’s PAYE scheme
• a penalty notice in respect of prohibited recruitment conduct (i.e. recruiting on the basis of whether or not a person might opt out of automatic recruitment), the penalty is between £1000 and £5000, depending on the number of persons in the employer’s PAYE scheme.

An employer or other person to whom the Regulator has issued a notice may ask in writing for the notice to be reviewed within 28 days of the date the notice was issued.  The Regulator may choose to review a notice with 18 months of the date of issue.  The Regulator may subsequently confirm, vary or revoke the notice, or substitute a different notice.

Where there is a complaint to the Regulator that the employer has induced a worker in some way to give up scheme membership or to opt out of membership, the Regulator may only issue a compliance notice if the contravention occurred within

• six months before the complaint was made, or
• four years before the date on which the Regulator informed the employer of an investigation into the complaint, if no previous complaint had been made.

Transfers from pension funds

The Pension Schemes Act 1993 contains provisions that permit transfers out of pension funds when employees leave their employment and for those funds to be put into another pension scheme.  Those provisions do not apply to the NEST scheme until the member reaches minimum pension age (age 55 from 6 April 2010) or an earlier date in the case of an ill-health retirement.

Protected disclosures

The Employment Rights Act 1996 contains provisions that provide employees with the right not to suffer detriment treatment as a result of making a “protected disclosure”, otherwise known as “whistle-blowing”.  These provisions also apply to disclosures to the Pensions Regulator in matters relating to employers’ duties under the Pensions Act 2008.

Further information:

Final auto-enrolment regulations published

Millions to get first pension – employers to pay in

National Employment Savings Trust Order 2010

Occupational and Personal Pension Schemes (Automatic Enrolment) Regulations 2010

Personal Accounts Delivery Authority Winding Up Order 2010

National Employment Savings Trust Corporation Naming and Financial Year Order 2010

Employers’ Duties (Implementation) Regulations 2010

Employers’ Duties (Registration and Compliance) Regulations 2010

Transfer Values (Disapplication) Regulations 2010

Public Interest Disclosure (Prescribed Persons) (Amendment) Order 2010

Application of Pension Legislation to the National Employment Savings Trust Corporation Regulations 2010

National Employment Savings Trust (Consequential Provisions) Order 2010

Pensions Act 2008 (Commencement No. 5) Order 2010

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This entry was posted on Wednesday, January 20th, 2010 at 15:58 and is filed under Compliance, Pensions, retirement. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.