The Government has tabled the Private Sector Pensions (Amendment) Bill 2021 (the “Bill”) to amend the provisions of the Private Sector Pensions Act 2021 (the “Act”), which has yet to be brought into force, hereinafter referred to jointly as the “Regulations”.
The Act introduced a mandatory employer-sponsored pension regime that was due to be implemented by the 1st July in the case of companies with an average number of employees exceeding 250.
The Bill introduces a number of changes to the Act, which include:
- Amending the criteria by which employers are required to provide their employees with a pension option.
- Changing the pension commissioner (the “Commissioner”) from the Income Tax Commissioner to the Financial Services Commission.
- Authorising the Commissioner to charge fees.
- Establishing a register of employers providing pension plans.
- Providing a complaints procedure overseen by the Financial Services Ombudsman.
The following table compares the criteria by which the legislation was to be implemented under the Act and, now, by the Bill:
Table classifying employers and the date they must implement the legislation.
One effect of the proposed change is to allow employers to delay the implementation of the Regulations by up to three years, in certain cases, i.e.:
- Employers with the average number of employees between 51 and 100 may begin implementing the regulations up to three years later (2025 as opposed to 2022).
- Those with average number of employees between 15 and 50 may begin implementing the regulations one year later, (2026 as oppose to 2025).
- Those with an average number of employees between 11 and 14 may begin implementing regulations two years later, (2027 as opposed to 2025).
Prior to the Act, there were countless instances of employees failing to join a pension scheme, whether provided by their employer or otherwise. The Act made it obligatory for employers to offer their staff the option of joining a pension scheme and providing the Commissioner with ongoing evidence of their adherence to the Regulations. No longer would employees fail to reap the benefits, and security, afforded to them by providing for their retirement.
Business have three ways to comply with the Regulations as follows:
- Establish their own occupation pension scheme.
- Become a member of a multi-employer occupational pension scheme
- Contribute to each employees’ personal pension plan.
The Act provides that where an employee wishes to join a pension scheme, the employer is compelled to offer and contribute to such a plan.
To be eligible for inclusion, an employee must; earn over £10,000 per year; are 15 years of age or older and have been in continuous employment with the employer for over a year.
The regulations have been designed to phase in the implementation of the Regulations to allow smaller employers more time to make the necessary adjustments to their systems and working practices. The Act classified employers using three criteria: turnover, balance sheet value, and the average number of employees. The Bill uses just one, the average number of employees. The Bill also adds an additional classification to the size of a business, that of ‘Enterprise’. This describes the largest of employers, previously referred to as a ‘Large’ employer. By introducing an enterprise into the classification list, adjustments have had to be made to the criteria describing; Large, Medium, Small and Micro employers, as can be seen in the above table.
The first implementation date is the 1st July 2021 (now passed) where the largest of employers, described as Enterprises have to offer all their employees with pension plans. There are no provisions covering groups, so if an employee has staff split between two or more companies, each company will be treated separately and will fall within the above classifications based on their own, individual activity.
It is envisaged that less than 20 businesses will fall within the classification of Enterprise (i.e. those employing in excess of 250 people) and which are obliged to implement the Regulations retrospectively by the beginning of this month, 1st July 2021. The Commissioner has written to all the affected business and is responsible for maintaining the Register of Employers Maintaining Pension Plans.
On or before the 30th of September 2021 (90 days after the obligation imposed by the Regulations), Enterprises will have to provide the Commissioner with details of all eligible employees split between:
- Pension members.
- Ineligible employees.
- Employees who opted out.
Every pension plan will have to have an administrator appointed to it and that administrator will, amongst their many other obligations, inform the Commissioner of any changes to the scheme, such as those employees leaving or joining it. Employees who opt out of joining a pension scheme will be required to sign an annual waver confirming they continue not wanting to participate.
The Regulations provide for the appointment of a Financial Services Ombudsman (the “Ombudsman”). The Ombudsman will be tasked and empowered to, amongst other matters, investigate, facilitate, mediate, propose or determine solutions to a dispute, arising as a result of the implementation of the Regulations, submitted by an employee or beneficiary of a pension scheme. It is envisaged that having matters dealt with by an independent Ombudsman will speed up the resolution of any disputes or uncertainties with regard the implementation of the Regulations.
Careful planning will be required when dealing with Spanish residents as they may not, in certain circumstances, be able to claim a deduction of their pension contribution depending on the type of pension adopted. Spanish residents require schemes that are registered with Institution for Occupational Retirement Provision (IORP).
In an age where individuals are living longer yet with a retirement age that is not extending as fast, governments are finding it increasingly difficult to fund public sector pension schemes. The solution is to decrease the benefit, increase the retirement age or promote prudent private alternatives. These regulations address the last of these alternatives.