In the UK, the Government took steps to ensure that employees are members of a company pension scheme and don’t solely rely on state pensions. The Pensions Act 2008 requires all employers to set up and contribute to a workplace pension scheme for anyone they directly employ. This legislation applies to any employer who has one or more members of staff and is called ‘automatic enrolment’.
Talking at the UK Department for International Trade event in Melbourne, Paul Beare explained that auto-enrolment is very similar to Superannuation. The difference between Australia and the UK is that the employee can opt-out of the scheme. The employees opt-out of the scheme resulting in the company stopping all contributions as well.
Why would an employee opt-out of the auto-enrolment pension scheme?
There could be a number of reasons: they have too much money; they don’t believe in a pension; there is a generation gap and they have a stigma around pensions. It may be that the company selected the NEST Government backed portfolio and actually the employee doesn’t want anything to do with the government.
The above situation could result in an employee not wanting to join the pension scheme but you the employer having to set up an auto-enrolment scheme anyway to make you compliant in the UK. Some may see this as red tape however it does make the employer compliant meaning when more employees come on board the scheme is there and can be utilised.
The enhanced provider pension
Some employers may want to pursue the enhanced provider pension scheme route. This could be with providers such as AVIVA, Scottish Widows, AEGON instead of the Government-backed scheme of NEST. Care must be taken when selecting one of these schemes and whichever one is chosen must satisfy the Pensions Act requirements.
By mutual consent, the employee could opt-out of the company scheme, and the employer contributes to a self-funded scheme instead. In this scenario, the company remains compliant under the Pensions Act 2008, as the employer has enrolled the employee.
What happens to the pension when the employee leaves the employer?
The options open to the employee will depend upon the pension scheme but will tend to be one of the following:
- leave the pension behind with the employer’s scheme and be paid it when the employee retires
- transfer the pension rights to a new occupational pension scheme
- transfer the pension rights to a personal pension.
Companies can face financial penalties if they fail to comply with UK legislation. Any employer thought to be evading their pension responsibilities and auto-enrolment duties will be investigated.
Pensions are a complex subject and Paul Beare Limited can provide further information and support as part of our UK based HR offering.