Between October 2012 and February 2018 employers will need to start automatically enrolling all of their 'eligible jobholders' in a pension scheme which meets minimum requirements. Employers will need to assess their workforce to determine who is an eligible jobholder. They must put processes in place to ensure workers are enrolled once they become eligible, and that those who have opted out are re-enrolled every three years.
A defined benefit pension scheme promises a set level of pension once you reach retirement age, no matter what investment returns the achieves on its assets. Employers who instead wish to use a defined contribution pension scheme for auto-enrolment should see our separate Out-Law guide.
Employers with eligible jobholders who are already active members of a defined benefit pension scheme may want those jobholders to continue in that scheme. They will need to check that the scheme meets minimum requirements and also issue information about the scheme to those jobholders.
The minimum requirements for a defined benefit pension scheme are either:
- it has a valid contracting-out certificate, indicating that it is an appropriate replacement for the state earnings-related pension scheme; or
- it provides broadly equivalent or better benefits than the benefits which a contracted-out scheme is required to provide.
The employer will then need to consider how to meet the auto-enrolment requirements in relation to its other eligible jobholders. These include jobholders who choose not to join, or are not eligible to join, the defined benefit scheme and those who have opted out.
If the employer wishes to use the defined benefit pension scheme for auto-enrolment purposes, jobholders will need to be able to join without first having to provide any additional information. Employers may need to amend the scheme rules so that this can happen.
Schemes which provide death benefits will need to be considered carefully. Insurers will typically want medical information about a member before agreeing to provide life cover.
Career average pension schemes must meet additional revaluation requirements.
Employers will need to keep records, such as the scheme contracting-out certificate, for six years. The Pensions Regulator can ask the employer to provide this information.
Employers may want to offer a more basic pension benefits package to staff who are not currently members of the scheme. Employers should consider whether these workers include a disproportionate number from a minority group as this may lead to discrimination claims.