Video

Vivien Cockerill: Hello, I'm Vivien Cockerill, head of pensions strategy. I'm going to be talking to Ian Curry about workplace pension reform. That's the changes that are going to make millions of UK workers pension savers for the first time. And Ian is going to be looking at the duties being placed on employers; really what they have got to do now to introduce those changes. So Ian let's start at the very beginning and tell me what is workplace pension reform and why is it necessary?

Ian Curry: So workplace pension reform is probably the biggest change to occupational pension saving for a generation. It's really going to change the way employers provide pensions for the bulk of their employees going forward. At the very highest level it involves the automatic enrolment of employees into pensions saving vehicles and also for the first time involves a minimum level of employer contributions into pension savings. The reason it's necessary is very simple. Millions of people are not saving anywhere near enough for their retirement and for a long time there has been a cross party consensus that this needs to change and workplace pension reform is the way that that will be delivered.

Vivien Cockerill: So obviously this is going to be a major change for employers. Can you tell me when do the new rules apply from?

Ian Curry: These rules are going to apply to employers at different times. The reforms are being staged so that they affect the largest UK employers from 1 October 2012 and that's any employer with more than 120,000 employees, so really the very biggest employers. And then by July 2013, anyone employing more than 3,000 people will be affected by the reforms. Now, for smaller and medium sized employers with less than 3,000 employees, the Government announced a delay to those staging dates and the latest position on that timetable is set out on the website.

Vivien Cockerill: So Ian, just exactly what do employers have to do then?

Ian Curry: Well, the first thing employers are going to have to do, and hopefully before the rules apply to them, is get to grips with all the jargon and defined terms that are in this area. Now fortunately we've taken all of these terms and put them into an 'easy to understand' glossary that's attached to our comprehensive guide, and all of that's available online. Once all of that's understood, employers will have to assess their workforce. They are basically going to have to divide their employees into three different groups. There are three categories, the eligible jobholders, the non eligible jobholders and the entitled workers, and all of that's explained in more detail in the comprehensive guide. Once employers have assessed their workforce, they then have to ensure that eligible jobholders are either enrolled into a qualifying scheme or automatically enrolled into an automatic enrolment scheme. They are also going to have to provide information to each of the three categories of workers and they will also have to process and administer member opt-outs and member op-ins where applicable.

Vivien Cockerill: And will auto enrolment apply to every employee in the organisation?

Ian Curry: That's a really good question because a lot of people in the industry are calling the reforms auto enrolment or automatic enrolment, and it's really giving the impression that automatic enrolment will affect everyone. In actual fact it's only going to be a duty for eligible jobholders. Eligible jobholders are those workers who work or ordinarily work in the UK, who have qualifying earnings above £7,475 a year in 2011 terms and who are aged between 22 and state pension age.

Vivien Cockerill: And will it be individuals or their employers who have to make contributions?

Ian Curry: Well it's potentially both. All the legislation requires is that employers make a minimum level of contributions and that there's a minimum total level of contributions. So for some organisations it will be the individuals or employees that make up the difference between the employer contribution and the total. From an employer's staging date, the contribution level will be 1% for the employer and 2% in total. But that will be increased over time until the reform gets to steady state when the minimum level of total contributions will be 8% and the minimum level of employer contributions will be 3%. All of those figures are based on qualifying earnings, which is a definition that is set out in the glossary. The government has also announced that the phasing of the contributions is going to be delayed and the latest position is set out on our website.

Vivien Cockerill: And what are the main things that employers should be doing now to prepare for the introduction of workplace pension reform?

Ian Curry: Well the first thing that employers should do, if they haven't done this already, is find out their staging dates, and they can find this out on the Pensions Regulator's website or by speaking to their usual contact in the Pensions team. After that, most businesses are going to want to find out exactly how much all of this is going to cost them because this is one the key parts of workplace pension reform. It's going to cost businesses money both in potentially increased contributions and also in the cost of administering the reforms. The biggest piece of work is probably devising an implementation strategy, so really getting to grips with how the business as a whole is going to deal with workplace pension reform. And in doing that a lot of businesses are going to want to speak to their professional advisers.