By Julia Ridger, Employee Benefits Director, Smith & Williamson

To get more people to save for their retirement, every employer will soon have a duty to offer a qualifying workplace pension scheme (QWPS) to employees. Between 2012 and 2016, companies will have to automatically enroll all eligible jobholders and make contributions on their behalf. There will be heavy penalties for failure to comply.

You’ll need to choose which scheme or schemes to use to comply with the new regulations. Even if you already have a workplace pension scheme in place, you’ll have to review it and possibly make changes to ensure it complies. It’s also up to you to educate new and existing employees about the implications of auto-enrollment and the direct effect it will have on them, and make sure that they join the scheme at the correct time.

Auto-enrollment will be implemented in stages according to the size of the business, the largest first. The Pensions Regulator will contact each employer 12 months before the relevant date.

Employee opt-out

Employees can opt-out but only after they have been auto-enrolled. If an employee does opt-out, automatic re-enrollment is required every three years. The employer will not be permitted to dissuade the employee from joining the arrangement or do anything to encourage the employee to opt-out. In particular, the employer cannot provide the member with an opt-out form – it must be obtained from a third-party.


Employers without a qualifying scheme that do not wish to set one up, or employers that do not want to use their existing scheme for all employees, can use the NEST scheme. NEST is being designed specifically to meet the needs of low-to-moderate earners and their employers. It will operate as a trust-based occupational pension scheme and will be regulated by the pensions regulator. While NEST is designed to be low cost for those who remain invested for an extended period, it could be extremely expensive in the short term.

Many commentators feel that all but the smallest employers should not rely on NEST as they may be much better served by offering, or continuing to offer, their own retirement savings solution to employees. There are specific regulations, such as a relatively low cap on the amount of contributions that can be paid to NEST and (currently) a prohibition on transfers out, which may make NEST less attractive to employers as an alternative to implementing their own QWPS.

Actions and choices

All employers should analyse how many employees will be affected and if their existing schemes meet the qualifying requirements. Even if you have a qualifying scheme, you’ll need to decide whether to use this scheme or simply auto-enroll employees into NEST.

As these changes are likely to affect your pension costs, you may want to take the opportunity to review benefits for all staff.

The changes outlined will have a wide-ranging impact on costs to employers and the suitability of existing pension arrangements. To discuss how auto-enrollment will affect your business, call Julia Ridger on 020 7131 4437 or email julia.ridger@smith.williamson.co.uk

Disclaimer - By necessity, this article can only provide a short overview and it is essential to seek professional advice before applying its contents. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.

Smith & Williamson Investment Management Limited Authorised and regulated by the Financial Services Authority.

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Watch the video below featuring Lyndon Massey of Smith & Williamson how business owners should plan for their own retirement.