Seafarers and off-shore workers must be auto-enrolled into a pension scheme if they ordinarily work in the UK

Employers of seafarers and offshore workers (who work in oil and gas extraction and related activities in the UK territorial sea, UK continental shelf, or in the UK sector of a cross-boundary field) must auto-enrol them into eligible pensions schemes when auto-enrolment starts in October 2012.

The time you should begin the auto-enrolment process is referred to as the ‘staging date’ and depends on the size of the employer of the seafarer or off-shore worker, concerned:

Seafarers and offshore workers were previously excluded from automatic enrolment under the Pensions Act 2008 in order to allow time for full consideration of the potentially complex legal issues that arose concerning how these groups should be covered by these provisions.

The Government has now stated that seafarers and offshore workers who are working, or ordinarily work in the United Kingdom (“UK”) should be automatically enrolled. This means that we would be treating this group in the same way as land based workers.

Relevant case law supports the view that a seafarer’s employment base will often determine where they are ordinarily working. The employment base is likely to be determined by several factors including where a tour of duty begins and ends. The case law in this area is not straightforward, is complex and contains exceptions. The Government expects case law in this area to develop over time, but the “base test” is not the sole determinant of who is seen to be ordinarily working in the UK.

It is slightly easier for employers determining whether offshore workers will be eligible for auto-enrolment since the Government states that they will be treated as if they are ordinarily working in the UK if they are working in the UK territorial sea, UK continental shelf, or in the UK area of a cross-boundary field.

Must all seafarers and off-shore workers be auto-enrolled?

Eligible jobholder All seafarers and off-shore workers who are “eligible jobholders” (so-called because they are “eligible” for automatic enrolment) need to be auto-enrolled. This is a person who:

• is aged at least 22 but has not yet reached state pension age, and
• earns above the “earnings trigger” for automatic enrolment (currently £7,475 in 2011/12: this “trigger” amount is up-rated annually).

Non-eligible jobholder So-called because they are not eligible for automatic enrolment (though they can choose to 'opt in' to an automatic enrolment scheme). This is a seafarer or off-shore worker who is a jobholder who:

• is aged at least 16 and under 75, and
• earns above the “lower earnings level” of qualifying earnings (£5,035 in 2011/12) but below the “earnings trigger” (£7,475) for automatic enrolment.

Or:

• is aged at last 16 and under 22, or between state pension age and under 75, and
• earns above the earnings trigger for automatic enrolment.

Entitled worker A worker who is aged at least 16 and under 75, works, or is ordinarily works in the UK, and earns below the lower earnings level for qualifying earnings.

Qualifying earnings This includes all of the following pay elements (gross): salary, wages, commission, bonuses, overtime, statutory sick payment, statutory maternity, paternity and adoption pay. These earnings are used to identify whether an individual is a eligible jobholder or a non-eligible jobholder, and also to determine the level of contributions a scheme must require.

What are your minimum contributions?

Employers can choose to contribute more but 3% is the statutory minimum contribution to an eligible job-holders pension under auto-enrolment when the scheme is in full operation by 1 October 2017. Employers wanting to use an existing occupational defined benefit scheme as a suitable pension scheme for auto-enrolment need to make sure that it will pass the statutory ”test scheme”. Employers with a defined contribution scheme need to ensure they are paying minimum contributions as set out in the table below:-

What should you do to prepare for auto-enrolment?

• Consider whether you are likely to be able to meet the deadlines, duties, obligations and logistical challenges involved in auto-enrolment.
• Ensure that your human resources, payroll, IT and other departments are aware of auto-enrolment and are making preparations by:
• checking who is an eligible jobholder;
• deciding whether to use their existing pension scheme, NEST or a combination of both;
• ensuring that, if you choose to make use of your existing pension scheme, it will meet the statutory tests that will allow for it to be used; and
• budgeting for any additional costs of the pension contributions the business may have to make.

What happens if an employer ignores auto-enrolment?

An employer who "wilfully" fails to comply with certain key duties (auto-enrolment, re-enrolment, and the jobholder's right to opt in) will be guilty of a criminal offence, liable on conviction to imprisonment or a fine or both.

Comment

A number of maritime trade unions have been demanding that the Government broaden auto-enrolment to cover seafarers and off-shore workers, and it appears that the Government has acceded to their demands.

Some press articles have also suggested that there will be up to 50% of eligible seafarers who will decide to opt out of auto-enrolment, saving their employers substantial amounts in pension contributions.