• Automatic enrolment

  This is a core employer duty under the pensions reform legislation, whereby an employer will have to arrange to automatically enrol all eligible jobholders into a qualifying scheme, unless the jobholder:

  • is already active in a qualifying scheme at the auto-enrolment date, or
  • decided to stop their active membership of such a scheme within a certain period before the auto-enrolment date.

• Auto-enrolment scheme

  A qualifying scheme which the employer can use to opt-in, auto-enrol and re-auto-enrol their jobholders. The member doesn't have to make any decisions (for example, choosing an investment fund).

• Automatic re-enrolment

  When an eligible jobholder has opted out at the last enrolment date or has chosen to stop making contributions to, or has otherwise stopped being an active member of, the scheme, the employer has a duty to automatically re-enrol them, normally every three years, unless they stopped being an active member within a 12-month period before the auto re-enrolment date. You can re-enrol them three months before or after the auto re-enrolment date.

• Contract-based schemes

  These are pension arrangements set up under contract between the individual and the provider. An employer is not an official party to the contract, but can facilitate the set up of these plans and can choose to pay into the plan. This is different to an occupational pension scheme, which is set up as a trust-based scheme. Auto-enrolment into contract-based schemes is allowed from 2012 onwards. Group personal pensions (GPPs), group stakeholder pensions (GSHPs) and group self-invested personal pensions (GSIPPs) normally fall into the contract-based category.

• Contribution cap

  This is the overall maximum yearly contribution that can be paid into the National Employment Savings Trust (NEST) by and for a member. It includes employer contributions, employee contributions and tax relief. The initial limit is £3,600 but this figure will be increased between 2005 and 2012. The cap is likely to be removed after September 2016.

• Earnings trigger for auto-enrolment

  The minimum amount that a jobholder has to earn to be auto-enrolled in a pensions scheme is currently £7,475 pa.

• Eligible jobholder

  Eligible jobholders are jobholders aged at least 22 and under state pension age with earnings of at least £7,475 (in 2010/11 terms).
  

• Employer compliance

  All employers - except for single-person companies will have to comply with pensions reform legislation. The Pensions Regulator will monitor employers to make sure they comply with the legislation. Measures can be taken against employers or third parties where there has been a breach. These include the issue of a compliance notice or unpaid contributions notice, which, if not complied with, may be followed by the issue of a fixed or escalating penalty notice.

• Enrolment information

  This is the information an employer must give to a jobholder who is to be enrolled, auto-enrolled or auto-re-enrolled.

• Inducement

  It's illegal for employers to encourage employees to opt out or give up active membership of the pension scheme -known as inducement - for example by offering an employee cash or any other benefit.

• Jobholder

  Is a 'worker':

  • who is aged at least 16 and under age 75,
  • who is working or ordinarily working in Great Britain under the worker's contract, and
  • to whom qualifying earnings are payable by their employer in the relevant pay reference period

• Joining window

  The current proposal is for occupational and contract-based schemes to make the jobholder a member of the scheme within a maximum of a month after their auto-enrolment date. Their membership is backdated to their auto-enrolment date.

• Master trust or centralised scheme

  This is an occupational trust-based scheme, set up by a provider, in which many non-associated employers participate and in which the trustee's duties are carried out by a trustee corporation.

• Minimum contribution requirement

  Minimum contribution requirements apply for jobholders whose qualifying scheme is a wholly defined contribution scheme. The Pensions Act 2008 sets the level of minimum contributions for any pay reference period as 8% of qualifying earnings (although this 8% will be phased in).

  Of this 8%, the employer must pay at least 3%. If the employer only pays this minimum amount, the balance will be met by a 4% jobholder contribution, and 1% tax relief.

  The minimum contribution will be phased in as follows:

  	Employer contributions	Jobholder contributions*	Total
  Staging date to 30 September 2016	1%	1%	2%
  1 October 2016 to 30 September 2017	2%	3%	5%
  1 October 2017 onwards	3%	5%	8%

• National Employment Savings Trust

  Employers can use this instead of a private pension scheme to meet the new employer requirements. It will be a large trust based defined contribution occupational scheme run by the NEST corporation with employers' and members' panels to represent their interests.

• Opt-in

  A jobholder who doesn't have to be auto-enrolled or automatically re-enrolled by their employer, and who is not already a member of a qualifying scheme, has the right to opt in to an automatic enrolment scheme.

  Eligible jobholders can opt in (if they have opted out) but not if they have already opted in (then out) less than 12 months ago.

• Opt-out

  A jobholder who is enrolled (whether this is through automatic enrolment, automatic re-enrolment or exercising the right to opt in) has the right to opt out within the opt-out period. In this event, the jobholder is treated as if the enrolment that had just taken place had not happened.

• Opt-out period

  The opt-out period is one month (six weeks if an invalid form is given). Under an occupational pension scheme, the period can't start until the jobholder has both been made an active member of the scheme, and been given the enrolment information. Under a personal pension scheme, the period can't start until the jobholder is deemed to have entered an agreement to be an active member of the scheme.

• The Pensions Regulator

  The Pensions Regulator is the UK regulator of work-based pensions. The Pensions Act 2004 gives it three main statutory objectives:

  • to protect the benefits of members of work-based pension schemes
  • to promote good administration of work-based pension schemes, and
  • to reduce the risk of situations arising that may lead to claims for compensation from the Pension Protection Fund

  The Pensions Act 2008 gives the Pensions Regulator a new objective to maximise compliance with the new employer duties, as well as the safeguards to protect employees who want to save in a pension.

• Phasing in

  The minimum contribution level requirement will be phased in to allow employers and jobholders to adjust their cash flow to meet the new demands of pensions reform.

• Qualifying earnings

  In a pay reference period of 12 months, qualifying earnings are gross earnings between £5,715 and £38,185 (with proportionate amounts for a period less than 12 months). These figures are in 2010/11 terms and will be revised for 2012.

  'Earnings' include:

  • salary or wages
  • commission
  • bonuses
  • overtime payments
  • statutory sick pay, statutory maternity pay, ordinary or additional statutory paternity pay and statutory adoption pay
  • such other sums as are allowed under regulations

  
  Most private pension schemes won't currently base contributions on all of these earnings.

• Quality mark

  The National Association of Pension Funds (NAPF) has developed a Pensions Quality Mark to recognise a good pension scheme. The core aspects it has identified are:

  • Contributions are a total of at least 10% of earnings with at least 6% employer contributions. There is a higher standard (total 15% contributions, of which at least 10% must come from the employer).
  • Appropriate governance standards must be in place.
  • Employee communications must be clear and engaging.

• Qualifying scheme

  In relation to the UK, a qualifying scheme is:

  • an occupational pension scheme (as defined in section 1(1) of the Pension Schemes Act 1993), or
  • a personal pension scheme registered under the Finance Act 2004

  which, while the jobholder is an active member, meets the quality requirements in relation to the jobholder.

  There are different quality test requirements for different types of schemes.

• Quality test requirement

  This is the test that a pension scheme must meet in order to be a qualifying scheme.

  The quality test requirement under a defined contribution scheme relates to the level of contributions paid. Under a defined benefit scheme, it relates to the level of benefit accrual provided, using either the reference scheme test (contracted-out schemes) or test scheme standard (contracted-in schemes).

• Self-certification

  The Pensions Act included the ability for employers to self-certify in advance that their contributions will meet the test for each of their jobholders. Any qualifying scheme that meets one of the following criteria can self-certify and will meet the minimum contribution test:

  • Minimum 9% contribution of pensionable pay (including 4% employer contribution), or
  • Minimum 8% contribution of pensionable pay (with a 3% employer contribution), as long as pensionable pay makes up at least 85% of the total bill, or
  • Minimum 7% contribution of pensionable pay (3% employer contribution), as long as the total pay bill is pensionable

  Employers will have to self-certify every year.

• Staging

  Rather than having one start date, automatic enrolment responsibilities are to be staged in for different employers, with larger employers being first, over a four year period, starting in October 2012. Employers with staging dates of October or November 2012, may bring their staging date forward to July 2012.

• Trust-based scheme

  This is an occupational pension scheme set up under trust, for example, a defined benefit occupational scheme or a money purchase occupational scheme. Under these schemes, trustees legally own the pension funds on behalf of the beneficiaries, and have a fiduciary duty to act in the best interests of the beneficiaries.

• Waiting period

  The employer can choose to delay auto-enrolment for up to 3 months but the employee can choose to opt in during this period.

• Worker

  This is an individual who has entered into or works under a contract of employment or any other contract to do work or perform services personally for the other contracting party. It doesn't matter whether the contract is in writing or implied. An individual who contracts to do work for a customer or client of their business undertaking or profession is specifically excluded (for example, an employer company contracts with a trader business to provide certain services or contracts with a professional firm, such as external lawyers, to provide legal advice).

  This therefore covers full-time, part-time, fixed-term/temporary, and agency workers, where there's a contract with the employer to do work for them (not as part of a business relationship).

  There are special provisions in the Pensions Act 2008 for agency workers who don't have a worker's contract with either the principal or agency, as employer, and also for company directors, the armed forces, those in Crown employment or working offshore or on vessels, and certain others.

  A company director is not a worker unless they are employed by the company under a contract of employment, and at least one other person is employed. In other words, one-man companies are not included in the legislation.

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