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The new workplace pension rules

31 October 2014

Auto-enrolment: compulsory pension provision

The pharmaceutical industry, along with other UK employers, is in the process of adapting to new workplace pensions requirements which require employers to enrol their eligible employees into a pension scheme, and to make contributions to it on their behalf. 

For many smaller pharmacies, this will be their first experience of occupational pension schemes, which can seem complicated, confusing and expensive. 

This article explains the obligations pharmacists now face as employers, and the options you have to comply with them.

When do the Obligations take Effect?

The new laws affect all employers in the industry, from pharmaceutical giants with tens of thousands of employees, to individual pharmacists employing only one assistant. 

Larger companies are already required to comply and the law is gradually being rolled out for smaller employers according to their size. 

The date on which an employer becomes obliged to comply with the auto-enrolment regime is known as their “staging date”. By the end of 2018, all employers will have passed their staging dates.

To find out your staging date, you can use the Pensions Regulator’s online tool.

Who must be Auto-Enrolled?

Not all staff in a pharmacy will be eligible. 

The current position is that full time and part time workers working in the UK must be enrolled if they:

  • are at least 22 years old, but under 65
  • earn more than £10,000 a year (correct for the tax year 2014-15), and
  • are not already in a workplace pension scheme which complies with certain requirements.

What about contract workers at your pharmacy?

The formalities of the worker’s engagement are not relevant. 

As long as they fulfil the above criteria, they will be eligible even if they are employed via an agent or are on short-term contracts, which is often the case for at least some workers at a pharmacy.

What are the required contributions?

The amount required to be put into the scheme by both worker and employer is changing over time. 

By October 2018, the level will be a total contribution of 8% of the worker’s “qualifying earnings”, the earnings between £5,772 and £41,865 (for the tax year 2014/2015). 

This will be made up of a 3% contribution by the employer and a 5% by the employee.

The contribution rates are increasing over time, with a 3% combined (employer 1%, worker 2%) required up to September 2017, and a 5% (employer 2%, worker 3%) up to October 2018.

In addition, it is likely that beyond 2018 the total contribution rate will increase further.

Is it mandatory?

For the employer, yes. 

The worker can choose to opt-out if they so wish but the employer must re-enrol them every three years from their original staging date and (if they wish) the worker must then opt-out again. 

Accurate record-keeping is therefore essential. 

Opting-out is done by submitting a written form, obtained from the pension scheme, to the employer at any time within 1 month of joining the scheme. 

If the worker opts-out after this period, they will not be entitled to a return of the contributions that the employer and employee have made to the scheme. 

In addition, the worker may re-join the scheme at any time.

What are the dangers?

Any decision to opt-out must be taken entirely freely by the worker and so employers must be extremely careful to avoid putting pressure on them to opt-out. 

This could, for example, take the form of offering a pay-rise in return for their agreeing to opt-out, or by asking questions at interview about the their intentions regarding opting-out. 

There are severe penalties (up to a £10,000 daily fine for the largest employers and criminal convictions for persistent offenders) for failure to comply with auto-enrolment obligations and so pharmacists who are employers should have a clear plan in place as early as possible.

How can employers comply?

Larger employers often already operate pension schemes that they are now using for auto-enrolment purposes. 

These will be subject to certain quality and governance standards, including those outlined above regarding contribution rates. 

Smaller pharmacists who are employers may find it difficult to set up their own schemes due to the administrative cost involved. 

One alternative is to purchase an “off the shelf” scheme from an insurance company. 

However, it can be difficult for small employers to obtain these at this stage in the auto-enrolment process. 

The government’s NEST (National Employment Savings Trust) scheme has become a popular choice, due to its ease of set up, administration and low cost for employers and workers.

This article was written by David Reissner.

For more information please contact David on +44 (0)20 7203 5065 or david.reissner@crsblaw.com