Another new year focuses the mind on what the next 12 months will hold. This is, therefore, the perfect time to think about pensions! We have set out below four pension considerations for employers.
1. What type of pension do you offer your employees? Is it the right one?
There are lots of different pension schemes you can offer to employees. Employers should consider all the characteristics of the different types of pensions when deciding on the pension benefits to provide to employees. For example, contract based pension schemes involve an individual contract between an employee and a pension provider while trust based pension schemes are set up under trust, usually by an employer, for the benefit of a group of employees.
In the current market it is important for employers to consider the benefits they offer in order to attract and retain talent, which includes the pensions they offer to employees. Employers might want to think about whether they are providing access to a pension which is likely to give their employees the benefits they want and need for their retirement. This includes considering the type of pension provided to employees (see above) as well as the contributions payable by the employer and employee, possibly in addition to the minimum contributions required under automatic enrolment legislation.
2. Are you complying with your automatic enrolment duties?
Every employer in the UK has to automatically enrol certain workers into a qualifying pension scheme (i.e. a pension scheme which meets certain conditions) so it is essential that each employer understands their automatic enrolment duties.
For automatic enrolment purposes, workers are categorised as:
- eligible jobholders who must be automatically enrolled into a qualifying pension scheme;
- non-eligible jobholders who must be given the right to opt into a qualifying pension scheme; and
- entitled workers who must be given the right to join a pension scheme but it need not be a qualifying pension scheme.
As well as being clear on what their automatic enrolment duties are, employers need to ensure that they have robust governance in place to ensure compliance with those duties. This includes having processes in place to monitor and assess their workforce to ensure that they enrol and re-enrol individuals as required (automatic enrolment duties do not just apply on day one of an individual’s employment) as well as to document compliance with their obligations.
3. Do you know what your obligations are on a TUPE transfer?
In addition to ensuring that every employer complies with their automatic enrolment duties, employers need to be aware of their obligations when they receive transferring employees as part of a relevant business transfer or a service provision change (a TUPE transfer).
A relevant business transfer is a transfer of business, undertaking or part of a business where there is a transfer of an economic entity that retains its identity following the transfer. A TUPE transfer can also occur on a service provision change, for example a business outsourcing to a contractor or the subsequent in sourcing of employees at the end of a contract. Some TUPE transfers could involve both a business transfer and a service provision change.
Where there is a TUPE transfer, TUPE seeks to protect employees’ rights so contractual employment rights (including all rights under or in connection with any such contract) transfer to the new employer, but this does not always include pension rights. Employers need to understand which employment and pension rights do and do not transfer on a TUPE transfer. Employers also need to be aware that new employers have to provide transferring employees with minimum pension benefits.
It is, therefore, important to understand the benefits transferring employees receive from their current employer as well as the benefits the new employer will have to provide to employees transferring under TUPE, both by virtue of TUPE and as required by the minimum pension benefits protection rules.
4. Are you keeping up to date with the ever evolving pension obligations of an employer?
Pensions is continuously and constantly evolving. For example, the Pension Schemes Act 2021 introduced some significant changes to the pensions landscape. Since the Act became law on 11 February 2021, various sets of Regulations and guidance have also been published.
One area which is changing is the notifiable events regime. Employers and trustees are already each required to report certain specified events in relation to their defined benefit pension schemes to the Pensions Regulator. These events are known as notifiable events. There are changes being introduced which will change the list of employer notifiable events and introduce a new obligation for employers to issue a notice and accompanying statement to both the Pensions Regulator and the trustees of a defined benefit pension scheme in relation to certain events.
Employers sponsoring a defined benefit pension scheme should ensure that they are aware of the notification regime changes being introduced so that, when the changes come into force, they can comply with them. This concept should also apply more widely: Employers should make sure that they are aware of their legal obligations in respect of pension schemes and have processes in place to keep their knowledge up to date so they can comply with those legal obligations even as they change.
