New Legal Requirement

Auto Enrolment

Auto Enrolment

In October 2012, new legislation was brought in obliging employers to automatically enrol all eligible members of staff in to a workplace pension scheme and make a minimum contribution to the fund.  The move has been described as scary, a pain, hassle and many other words that we can’t put to print!!

WHEN?

Auto-enrolment has being phasing in since 2012 when it started with the larger companies.  Those companies with less than 50 workers and new employers may have up to 2017.  The staging dates for every company were decided by a snapshot of how many personnel were on HMRC employee records as at 1st April 2012, or the letters in their PAYE scheme reference.

WHO?

Employers must automatically enrol ‘eligible jobholders’ who are:

  • aged 22 to state pension age (SPA)
  • working in the UK
  • earning over £10,600 a year (known as qualifying earnings) including
    • Salary
    • Wages
    • Commision
    • Bonuses
    • Overtime
    • Statutory sick pay
    • Statutory maternity, paternity and adoption pay
  • not already a member of a qualifying pension scheme

Some staff who don’t meet the criteria above, known as ‘Non-eligible jobholders’, are able to ask to join the pension scheme under automatic enrolment.

  • aged between 16 and 21, or the SPA and 74
  • working, or ordinarily working, in the UK
  • have qualifying earnings for auto enrolment

Or

  • aged between 16 and 74
  • working, or ordinarily working, in the UK
  • do not have qualifying earnings for auto enrolment

Certain other staff can ask to join a pension scheme – ‘Entitled Workers’. An employer must put these staff in a scheme, but the rules are different and there’s no requirement for you to pay an employer contribution.

  • Aged between 16 and 74
  • Working, or ordinarily working, in the UK
  • Do not have qualifying earnings payable by the employer in the relevant pay reference period.

HOW DO I CHOOSE?

You need to make sure that you choose a scheme that suits your business once you have a clear and complete assessment of your workforce.

A Qualifying Scheme may be a UK or non-UK scheme, but for it to qualify it must:

  • be an occupational or personal pension scheme
  • be tax registered
  • satisfy minimum requirements as set out by the Pensions Regulator

Other options available are NEST, People’s Pension and Now Pension amongst others.

Business Works are unable to help you decide or recommend a scheme for you.  However, we are working closely with an Independent Financial Advisor (IFA) who we can arrange for you to meet with.

WHAT ELSE?

An employer must write to each member of staff to tell them personally how they have been affected by automatic enrolment.  The information you will need to tell them is different depending on their rights and the duties you have for them.

The employer must also provide certain information to the regulator about how they have complied with their duties.

HOW MUCH?

All businesses will need to contribute at least 3% on the qualifying pensionable earnings for eligible jobholders.  Compulsory contributions are being phased in to make it a bit more financially easier for employers, starting at 1% before eventually rising to 3%.

There will also be a total minimum contribution which must be paid by the employees if the employer does not meet the total minimum contributions.  If the employer only pays the employer’s minimum contribution, employees’ contributions will start at 1% of their salary, before eventually rising to 4%.  An additional 1% in the form of tax relief will mean that there will be a minimum 8% contribution rate.  In most cases the employee will need to contribute, an employer may choose to pay the full 8% or even higher.

 

Transitional period Duration Employers minimum contribution Total minimum contribution

1

Employer’s staging date to 30 September 2017  1%  2% 

2

1 October 2017 to 30 September 2013  2%  5% 
1 October 2018 onwards   3% 8%