The first phase of the Government’s workplace pension scheme (WPS) kicked off this month with larger employers initially required to enroll their staff into a workplace pension scheme. This initiative has been introduced to address the fact that we are living longer and, even with the state pension age being gradually increased, need to enhance the funding for retirement in the UK. A staging timetable, setting out when employers will be affected - all based on the numbers of members in their PAYE scheme -is available on the Department of Work and Pensions website.
So how will this new legislation, as it is phased in, affect GP practices?
- Do you currently pay any employers’ contribution to staff pensions?
- How will practice finances be affected if all your staff stay in the scheme?
- Have you personally applied for fixed protection prior to April 2012 to prevent a reduction in their lifetime pension allowance?
The first point is to recognise that the Pensions Act 2008 comes with strict employer obligations, completely different from the stakeholder pension legislation introduced in 2001 and it will have a significant impact on all employers. The impact of WPS and auto-enrolment will be felt most by those GP practices that do not currently pay any employers’ contribution to staff pensions, as they will soon need to make provision for this additional cost. They will need to get specialist advice, and as soon as possible as demand is likely to outstrip specialist capacity in this area as the legislation is phased in amongst smaller employers.
Currently, all GP practice employees who are eligible are likely to be automatically included in NHS superannuation scheme or an equivalent pension scheme although staff can, at present, elect to opt out.
However, as the WPS is phased in, GP practices will have the responsibility of automatically enrolling all eligible jobholders, into the scheme. They will also be duty-bound to provide new members with information about the scheme they have been enrolled into and about automatic re-enrolment.
Accurate record keeping will be crucial as there will be further complexities for employers in managing any staff wishing to opt out of the WPPS. The employers will be required to give advice to those individuals on how to do so and they must then re-enrol them again in three years time. An employer must also provide a refund of contributions to any jobholder who opts out during this opting out period.
Auto-enrolment could also have financial implications on those GPs who have applied for fixed protection prior to April 2012to prevent a reduction in their lifetime pension allowance.It’s crucial to get expert advice on these areas as soon as possible.
While the Government has sought to raise the profile of the WPS through their ‘I’m in’ campaign, clearly more needs to be done. Findings from the recent Workplace Pension Report commissioned by Scottish Widows showed that only a third of employees with an income of under £20,000 per annum were aware of the upcoming changes to pension legislation and 11% planned to opt-out of automatic enrolment.
Dawn Dickson, partner and employment law specialist at Davidson Chalmers