Try our new Auto Enrolment planner for employers. This online planner will assist employers in understanding their responsibilities when automatic enrolment is initiated from October 2012.
What’s Auto Enrolment?
Auto enrolment is a term used to describe employees automatically being enrolled into their company pension scheme; it will be initiated without the employee having to take any active steps on their part. The Government has stated that many employees don’t enjoy the benefits of a company pension scheme because they overlook the opportunity to join the employer’s scheme. Automatic enrolment has been designed to overcome this.
Starting from the 1st October 2012 all eligible employees must be auto enrolled into a qualifying workplace pension scheme. Businesses can decide the type of qualifying scheme they wish to use, this could include NEST (National Employment Savings Trust). Every scheme needs to meet minimum requirements with regard to the benefits it gives employees. It is essential that the scheme allows for automatic enrolment for employees and for new employees when they are entitled to join.
Auto Enrolment – The Basics
Every employer will have duties to complete in preparation for the 1st October 2012 start date, their tasks will include;
- ensure a qualifying pension scheme is in place for eligible workers to enrol into
- decide upon a qualifying workplace pension scheme and
- set a minimum 3% contribution level towards a defined contribution scheme or offer the National Employment Savings Trust
- provide membership to a defined benefit scheme, alternatively a hybrid scheme can be offered as long as it meets certain conditions
What is an Eligible Employee?
Employees who are 22 years of age or over, but under State Pension Age (SPA) and earn above the personal income tax allowance (2011/2012 = £7475). Contributions towards the scheme are payable on income between £5,715 and £38,185.
In order to maintain a qualifying pension scheme, employers will have a duty to ensure workers are already members of a qualifying pension scheme and that new employees have the ability to join one.
Auto Enrolment – Staged Introduction Dates
The new duties will come into effect from 1st October 2012, however, employers individual responsibilities will be staged over the next four years. The staging dates for employers will be based on the size of their PAYE scheme and the last two characters of their PAYE reference number. Try our Auto Enrolment Staging Date Calculator
Employers will be given a 3 month waiting period before they are required to auto enrol their employees into their qualifying scheme. It is during this waiting period that employees can elect to opt-in to the scheme earlier and begin saving immediately.
Some of the UK’s largest companies will be given the ability to auto enrol their workers in July 2012, three months before the 1st October deadline. Employers are also allowed to re-enrol employees 3 months before and after their automatic re-enrolment date.
What are the minimum contribution levels for Defined Contribution and NEST?
When an employee is auto enrolled into a defined contribution or NEST scheme, there is a minimum level of contribution set at 8% of earnings. The employer must pay 3% minimum of qualifying earnings. If the employer elects to pay 3%, the employee will need to pay 4% and tax relief of 1% is paid by the government (a combined total of 8%.) Qualifying earnings are between £5,715 and £38,185.
It should be noted, that new minimum employer pension contribution levels will be gradually introduced over the following five years (from October 2012 to October 2017)
- From Oct 2012 to Sept 2016 – 2% of qualifying earnings with a minimum of 1% from the employer
- From Oct 2016 to Sept 2017 – 5% of qualifying earnings with a minimum 2% from the employer
- From Oct 2017 – 8% of qualifying earnings with a minimum of 3% from the employer
Auto Enrolment and Opting Out
Employees will be entitled to opt-out of the company pension scheme should they decide they do not want to participate. Employees who provide notice within the official opt-out period will be put back to the financial position they’d have been in should they not have become members in the first place. This would entitle them to a contribution refund of any payments made after auto enrolment took place.
We have designed an Employers Guide to the new pension rules. Please register your details opposite to download your free copy, alternatively please contact us for further information or to speak to a workplace pension specialist.