What is auto-enrolment?
To ensure people save enough money for their retirement in addition to the state pension, auto-enrolment into a workplace pension scheme was introduced by government to increase the number of people saving for their retirement. This it is hoped will mean people retire with a healthy pension pot, thus relieving the pressure on the benefits system in future decades, as the population tends to live longer.
Who is affected?
For employers, auto-enrolment applies on different dates, known as staging dates, depending on the number of employees a company has. The largest companies started to enrol employees in 2012.
The date when an employer must enrol their employees in a workplace pension scheme is known as the staging date. An employer’s staging date is set by law based on the number of people in their PAYE scheme. Companies with more than one PAYE scheme, will stage the date according to the number of employees in their largest scheme. To check staging dates for auto-enrolment, please visit www.tpr.gov.uk/staging.
- Employers with 250 or more people in their PAYE scheme have been staged between October 2012 and February 2014;
- Employers with 50 to 249 people in their PAYE scheme are staged between 1 April 2014 and April 2015;
- "Small employers" are employers with fewer than 50 people in their PAYE scheme. These employers will be staged between 1 June 2015 and 1 April 2017;
- New employers whose businesses were set up from 1 April 2012 and up to and including 30 September 2017 will have staging dates between 1 May 2017 and 1 February 2018. The number of people in their PAYE scheme does not count in this case: staging is based on when the employer first pays PAYE in respect of any worker;
- Employers that do not employ people through PAYE, those who maybe use freelancers and contractors, for example, will have a staging date of April 2017.
For employees, workers are split into categories, known as "eligible jobholders". To be an eligible jobholder, certain criteria must be met based on status (working or ordinarily working in the UK), age and qualifying earnings. Based on 2014/15 tax year, the following applies (this will be reviewed annually by government):
|Automatic enrolment or opt in?||Age||Qualifying Earnings (inclusive of bonuses, commission, overtime and certain statuary payments)|
|Eligible Jobholder||Automatic||Age 22 or over and under state pension age||More than £10,000|
(within relevant pay period: i.e. based on monthly earnings) Non-eligible Jobholder Opt in Age 16–21 or state pension age to 74 More than £5,772 Age 22 or over but under state pension ageMore than £5,772 but not more than £10,000 Entitled Worker Opt in Age 16–74£5,772 or less
Postponement of auto-enrolment
A business can opt to postpone auto-enrolment for up to three months for all or some of its staff. For example, if the staging date of the business is scheduled during a very busy time, then the business might postpone to a less busy period within the three months allowed; the staging date does not change however. A business may have individual staff members who wish to postpone staging, for example if they are temporary staff members, but in either scenario, businesses must inform staff of postponement within six weeks of the staging date.
Employers with existing workplace pension schemes
If an employer has an existing workplace pension scheme, or a worker already has a pension plan, providing it is approved by the Pensions Regulator, employees can opt out of a workplace pension scheme and employers can continue to use their existing pension scheme. However, all schemes must be registered with HMRC for tax purposes.
Can employers refuse to enrol workers in a pension scheme?
Employers that do not comply with the legislation are likely to face sanctions and penalties. Ignoring requests by the Pensions Regulator to enrol employees in workplace pensions carries a fine of up to £400. Employers with fewer than five staff that "wilfully and persistently" fail to comply with the legislation face fines of £50 a day, which rise to £500 a day for those with five to 49 staff, and up to £10,000 a day for those with more than 500 workers.
Can a worker opt out of joining a workplace pension scheme?
Yes, workers can opt out of the workplace pension scheme, but an employer must not offer employees incentives to opt out of the workplace pension scheme, for example, by offering a higher salary.
To opt out, an employee must fill in a form from the pension scheme and give it to their employer within a month of the date of auto-enrolment. The employer must inform the pension provider. If an employee fails to fill in an opt-out form, they will be automatically re-enrolled every three years.
How much should a person contribute to their pension?
The total minimum contribution will start at 2% of a worker’s gross earnings (of which at least 1% must be paid in by the employer). By October 2018, the minimum will rise to 8%, made up of at least 3% from the company, up to 4% from the employee, and 1% tax relief.
These percentages do not apply to the whole of an individual’s salary, but only to what they earn over a minimum (currently £5,564) up to a maximum limit (currently £42,475).
What should employers do?
- Identify the staging date for the business;
- Make an initial assessment of the workforce;
- Decide whether to use postponement;
- Begin administrative duties;
- Choose a scheme;
- Contact the pension provider;
- Define workforce (using PAYE records);
- Make costing analysis to fund the scheme;
- Assess the impact on business processes: record keeping is central to the process;
- Prepare data;
- Make statutory information available to employees through leaflets, emails and other information;
- Prepare payroll;
- Prepare to manage opt-outs and opt-ins;
- Within three months of the staging date, contact the Pensions Regulator to confirm that everything is in order.
Are you prepared for auto-enrolment?
"Small employers" should start forward planning for auto-enrolment NOW! June 2015 is only a year a way, and a year is a very short time in business, so visit www.thepensionsregulator.gov.uk for important information and guidance today.