Older people threatened with fines if they don't set up pension for carers

Elderly and disabled are being caught up in the next stage of the workplace pensions reform.

Around 70,000 elderly and disabled people have been sent letters warning they face a £400 fine and/or prosecution if they don’t set up a pension for their carer.

The letters are from The Pensions Regulator and state they have a legal duty to make pension arrangements for their employees.

Those impacted all receive cash from their local council to pay for support or care through a scheme called direct payments, which is why they have been caught up in the next stage of the pensions overhaul.

The pensions revolution

Since October 2012 the Government has been rolling out its workplace pensions scheme, which is also known as automatic enrolment, and is designed to tackle the problem of people living longer but not saving enough for retirement.

The scheme requires every employer in the UK to set up and pay into a workplace pension for all employees over the age of 22 (but under State Pension age) and earning more than £10,000. 

Initially just big businesses had to organise workplace pension schemes for their employees, but now smaller firms are required to get on board and start making arrangements too.

The Pensions Regulator (TPR), which is the body responsible for regulating workplace pensions, began contacting small and micro businesses in January to alert them about their new pension duties.

The problem is those who might not consider themselves as employers are being told they have to comply with the changes and will need to be ready by their ‘staging date’.

This includes tens of thousands of elderly and disabled people who get cash from their local authority in order to pay to employ a carer or personal assistant via a system known as direct payments.

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Direct payments

Direct payments is a scheme which offers a way for elderly and disabled people that need support to choose and buy in the services they require themselves, instead of having them arranged by their local council.  

After an assessment, councils will give those in need a regular direct payment onto a cash card or into a bank account so that they can source the services they need and pay for them.

While many source help through a third party agency, around 70,000 do it themselves.

The problem is those that directly employ one or more people to provide care or personal assistance are technically classed as an employer and therefore auto enrolment duties will apply.

How to prepare for auto enrolment

Around 1.5 million letters are being sent to small and micro employers by TPR to inform them about their new legal duties.

TPR says the letters aren’t meant to be threatening but are a ‘call to action’ to help elderly and disabled people and their families prepare for the changes.

Employers have 12 months to set up a workplace pension from their staging date.

Guidance for those who employ a care assistant is available on the TPR website and a more general guide on the whole process of auto enrolment is also available.

Below is some of the basic guidance on questions many will have:

Does auto enrolment apply to me?

If the person who provides you with care or personal assistance is provided by an agency or the council, TPR says you’re not an employer and automatic enrolment duties will not apply to you.

However, if you use direct payments from your local council or even your own money to pay for your care directly then you will need to take action and think about setting up a pension scheme for those that you employ.

Which pension scheme should I use?

There are a number of pension schemes that have been set up that will accept small and micro employers.

One is the National Employment Savings Trust (NEST), which has been set up by the Government. However there are a few alternatives.  Read Workplace pensions: the alternatives to NEST for more.

TPR warns you shouldn’t leave it too late to join a pension scheme as it can take time to set up and you may miss your deadline.

Who do I have to enrol?

If the carer or personal assistant you employ is aged between 22 and the State Pension age and you pay them more than £192 a week, you’ll have to put them into a pension scheme and pay money into that pension scheme.

If the carer or personal assistant you employ is aged under 22 or over the State Pension Age, or you pay them less than £192 a week, you don’t have to put them into a pension scheme. However, you’ll need to give them the option to join a scheme, unless they are aged under 16 or over 74. If they do join, in some cases this will mean you have to pay contributions to the scheme on their behalf.

Will there be extra money to pay the contributions?

As a minimum employers must pay in 1% of qualifying earnings currently, rising to 3% by 2018. So for someone employing a carer on £15,000 that means funding an extra £12.50 (rising to £40) a month or £150 (rising to £480) a year to meet this obligation.

TPR says if you receive money from your council to pay your carer, the council should build the cost of employing them into the money they pay you.

But that’s not guaranteed.

However, it’s for the council to decide the level of the payments they make to you, not TPR. If you have questions about the money you receive, you should contact your local council.

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More on pensions:

Pension Tracing Service to triple in size

Pension freedom changes: all you need to know

Annual cost of being a pensioner in the UK jumps £800

Work longer and boost your retirement income by a third

How to avoid the 55% pension lifetime allowance savings trap